Gulf oil producers are entering the new year on a more solid ground as their economies are projected to gain pace through the year and their financial position will likely get stronger, according to a Western financial study.
Strong oil prices and heavy public spending will ally with the gradual global recovery from the clutches of the 2008 fiscal distress to widen the economies of the six Gulf Cooperation Council (GCC) countries in 2011 after a sharp slowdown in 2009, said the study by the Institute for International Finance (IIF).
A breakdown showed the real GDP of all GCC members would accelerate next year but inflation will remain relatively subdued thanks to the steep fall in the property sector in the UAE and some other members.
The Washington-based IIF echoed forecasts by the International Monetary Fund (IMF) that 2011 would be much better than the previous two years and would mark the start for full recovery of the GCC oil-reliant economies.
“The GCC countries are returning to solid growth, underpinned by higher oil prices that are supporting robust government spending and exports, and by a normalization of global trade and capital flows,” IIF said.
“Following an overall growth rate of less than one per cent in 2009, real GDP is projected to increase by nearly four per cent in 2010 and 4.6 per cent in 2011, well below pre-crisis levels and the average for emerging countries.”
A breakdown showed Qatar would again record the highest growth in the region thanks to its rapidly rising LNG exports, with its real GDP projected to jump by around 10.6 per cent in 2011, far below the IMF forecast of 18.6 per cent.
Growth was estimated at about 3.9 per cent in Saudi Arabia, the largest Arab economy, at nearly 3.3 per cent in the UAE and Kuwait, at 6.1 per cent in Oman and around 4.9 per cent in Bahrain.
Different projections released by the IMF two months ago showed real GDP growth at 4.5 per cent in Saudi Arabia, 3.2 per cent in the UAE, 4.4 per cent in Kuwait, 4.7 per cent in Oman and 4.5 per cent in Bahrain.
IIF said an expected rise in oil prices and production by member states would sharply expand the GCC‘s combined current account to nearly $134 billion in 2011 from around $119 billion in 2010 and $62 billion in 2009. As a result, the region’s gross foreign assets will rise to $1.7 trillion by the end of 2011.
“Slightly more than half of these assets are in the form of Sovereign Wealth Funds (SWFs). With relatively little external debt, the region’s net foreign assets position of $1.2 trillion-equivalent to 113 per cent of GDP – is substantial.”
The report said that despite the GDP expansion in 2011, inflation will remain relatively low unlike in 2008, when the rate hit record high levels in most members. Qatar and the UAE suffered most with inflation climbing above 15 and 12 per cent respectively because of a surge in domestic demand, sharp increase in rents, a weakening in the US dollar and other factors.
“Inflationary pressures are generally limited as further declines in rents in the UAE, Qatar, and Kuwait-an important component of the CPI-persist.”
The study projected oil prices to climb to around $79 in 2011 from just over $70 in 2010 and $62 in 2009. The GCC‘s combined oil production could also rise by around 300,000 bpd to 15 million bpd in 2011 from 14.7 million bpd in 2010. Gas output is also expected to grow to 5.5 million barrels of oil equivalent per day from five million boe/d in the same period.
As for the fiscal balance, the study expected a surplus of around 5.3 per cent of GDP in 2011 compared with 5.6 per cent in 2010. The surplus climbed to an all time high of nearly 21.3 per cent in 2008, when average oil prices peaked at $95.
© Emirates 24|7 2010