DUBAI, 18 January 2007 — All economies of the Gulf states will continue to grow in 2007 although at a slower rate, as oil prices fall from last year’s record high and OPEC mandated oil production cuts take effect, Hongkong and Shanghai Banking Corp. (HSBC) reported.
In its recently published “Gulf Economic Forecast,” the bank said that the region’s governments will slowly and steadily push forward the reform process in order to create jobs and wealth for their rapidly growing populations.
Collectively, the GDP of the Gulf states doubled in the past four years, and 2006 marked the peak of this boom, the bank said.
HSBC singled out Qatar as being the region’s star performer, with the UAE offering the most attractive balance for investors, while prospects for Saudi Arabia remain strong, despite its exposure to international oil price trends.
Simon Williams, HSBC’s Middle East economist, said that “while we still feel positive about the outlook for the GCC, the boom of the last four years is set to slow.”
He further said “on a weighted basis, we estimate that real growth for GCC will stand at over 5 percent in 2007 and 2008. These years will see consolidation of gains that have already been made. The short-term future will see the GCC solidify the progress that has been made toward building economies that remain largely energy-based, but which have become far more diverse. The region has built a platform for growth that will continue for the remainder of the decade.”
“The strictures of World Trade Organization membership and bilateral free trade agreements and the increasing levels of competition within the GCC itself are driving reforms,” Williams said, adding that “2006 was exceptional,” it was a breakthrough year.
“The GCC is now a fully fledged, dynamic emerging market,” Williams pointed out. According to the bank’s estimates, the GCC economy is now roughly twice the size of that of countries such as Turkey, Argentina, South Africa and Poland — countries that have long commanded the attention of global investors.
In a country-by-country analysis, HSBC forecast that the UAE economy will grow by only 6.2 percent in 2007, a decline from the estimated 9.3 percent growth experienced in the country last year.
The bank predicted that the UAE’s annual economic growth rate would slow slightly further in 2008 to an estimated 5.8 percent.
However, the bank remained bullish on the outlook for the UAE economy for the coming two years, and said that it expects overall real growth to remain high.
According to the HSBC report, the increase in the country’s real non-oil GDP will be even more noticeable.
Against this backdrop of broad-based growth, HSBC also predicted that the country’s annual inflation rate will be seven percent this year, dropping to 6.5 percent in 2008, though the possibility of higher inflation is a real risk, particularly in Dubai.
Williams said “the UAE is now firmly established as an economic force to be reckoned with — not just in the Gulf region but internationally. While the country’s overall rate of economic growth will slow slightly in the next two years as oil prices ease and production falls, the non-oil sector will continue to expand strongly. The outlook for the UAE and for UAE companies remains good.”