Report expects GCC economic boom to continue
High oil prices and production should ensure a sustained economic boom in the six member states of the Gulf Cooperation Council (GCC) - Bahrain, United Arab Emirates, Kuwait, Oman, Qatar and Saudi Arabia - according to a new regional economic report released Thursday by the Institute of International Finance (IIF), the global association of financial institutions.
IIF Managing Director Charles Dallara noted that, "The GCC is in the midst of a period of exceptional economic performance. We are now forecasting aggregate GDP to expand by more than one-third for 2005 and 2006, while foreign assets are estimated to rise in these two years by more than $360 billion."
The IIF stated that economic activity in the GCC was strong in 2004 and it estimated that aggregate nominal GDP growth was 17.6 percent, after an expansion of 15.1 percent in 2003.
Mr. Dallara pointed out that, "High oil prices have facilitated increases in government spending and bolstered confidence, stimulating a surge in activity in the non-hydrocarbon sectors. While we have seen similar trends in the past, the current cycle now appears to be having more dynamic effects across the region. This reflects a number of key developments, including increased intra-regional capital flows, as reflected in a property boom and a run-up in equity prices; rapid rises in tourism in some countries; and a region-wide acceleration in project implementation. We now estimate that spending on projects this year and next will rise at least fourfold over the $35 billion seen in such investments in 2002-2003."
Howard Handy, IIF Director for the Middle East and Africa, stated that the IIF anticipates that oil export revenues are likely to rise by 49 percent to $291 billion in 2005 and inch up to $305 billion in 2006. By way of comparison, revenues from oil exports were just $61 billion in 1998 and averaged under $100 billion for the ten years to 2003. Saudi Arabia's oil export revenue between 2004 and 2006 is forecast to be greater than that for the whole of the 1990s. He said, "Growth in gas exports is even more dramatic, as we projected that export revenue from this source in 2006 ($21.1 billion) will be almost four times greater that the 1994-2003 average."
Mr. Handy added that, "We envisage oil prices, measured in terms of Brent Crude per barrel, averaging about $54 this year and $55 next year. Our estimates suggest that even if there is a sharp decline, the GCC governments can cut back on spending and mobilize substantial external assets."
Mr. Dallara pointed out that the new report stressed that, "Political rather than economic events pose the greatest risk to our forecast, as it would take a dramatic downturn in the oil price to jeopardize the healthy economic outlook. While terrorism is a constant issue and concern, it has had little impact on the GCC's economies to date. "