Tuesday, April 30, 2013

Gulf economies to keep growing despite cheap oil

Dubai: Economic growth in Gulf Arab economies is expected to slow through next year but should still be healthy as investment in the private sector offsets an expected drop in oil prices, a Reuters poll showed yesterday.

Analysts say that for the next couple of years the Gulf will not enjoy oil prices of around $110-115 that have boosted economic growth since early 2011. Brent crude oil? slumped by more than $22 to below $100 a barrel in the two months through mid-April and has since recovered only slightly.? "For most members of Opec, they will not be able to increase production. They may even have to cut it, so they will lose revenue because of that," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi. "From a demand perspective, Chinese growth seems to be slowing down because of what's happening in the euro zone. When you put all of those things together, forecasts for oil prices are for at least the next two years in a slight downtrend."

The poll of 19 analysts forecast that economic growth in Saudi Arabia, for example, would ease to 4.1 per cent in 2013 and 4.0 per cent in 2014. That would be a substantial slowdown from 6.8 per cent last year, but still count as strong growth by international standards thanks to expansion of the private sector and increased government spending.

Other members of the GCC ? the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain ? are expected to see broadly similar growth over the next two years, according to the poll.??????? ?
"Underlying GCC growth in 2013 should be better than the softish forecasts suggest thanks to the solid performance of the non-oil sector," said Daniel Kaye, senior economist at National Bank of Kuwait.?

In the UAE, which has been recovering from Dubai's 2009-2010 corporate debt crisis, growth is expected to decelerate slightly to 3.3 per cent this year from an estimated 3.5 per cent in 2012, before edging up to 3.4 per cent in 2014, the poll showed.

Qatar, which is gearing up to spend some $140 billion on infrastructure before it hosts the 2022 World Cup soccer tournament, is projected to grow 5.0 per cent in both 2013 and 2014, although that would be slower than the 6.2 per cent expansion seen in 2012.

Budget surpluses
The somewhat softer outlook for the world oil market is expected to take a toll on the GCC's fiscal balances, since oil and natural gas revenue provides the bulk of budget income. Saudi Arabia, the top Arab economy, has been raising budget spending by an average 14 per cent annually in the last decade. As a result, the oil price it needs to balance its budget jumped to $85 per barrel in 2013 from $38 in 2008, the International Monetary Fund has estimated.

However, assuming oil prices do not plunge into the $80s and stay there for an extended period, the bigger Gulf Arab economies are still far from slipping into the red. "Despite strongly expansionary spending, most of the GCC states will remain comfortably in surplus, with the exception being Bahrain, for which we forecast a small deficit," said Liz Martins, HSBC's senior economist for the Middle East.

In Saudi Arabia, the fiscal surplus should halve to 7.0 per cent of gross domestic product this year from 14.2 per cent in 2012, the poll showed. The 2013 forecast is slightly below the 7.1 per cent predicted by a previous Reuters poll in January. ?

Vital Stats
Saudi GDP growth seen slowing to 4.1% in 2013 and 4% in 2014
But non-oil sector, state spending to support economy
Budget surpluses to shrink; Saudi 2013 surplus seen halving
However, most fiscal positions comfortable through 2014

Source: http://www.timesofoman.com/News/Article-14288.aspx

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