MANAMA: As the credit crunch and dysfunctional credit and money markets cloud the global macro outlook, no country globally will be spared from the economic downturn. The 2009 GDP forecast for GCC as a region has been revised from 6.2 percent to 4.5 percent in 2009 due to the weakening global backdrop and lower oil prices, according to quarterly report of Merrill Lynch.
The report titled ‘emerging markets economics strategy’ released yesterday also highlighted impact on liquidity crunch on the sukuk market which showed a 50 percent drop on quarter-on-quarter basis.
Saudi Arabia, as the world’s largest oil producer, is benefiting from high oil prices that boosted its current account (31 percent of GDP) and budget (16 percent of GDP) surpluses. The report says GDP growth (4.9 percent) will continue to be driven by non-oil sectors (6.2 percent) such as finance, construction, transport and communication and petrochemicals in 2008. Oil output is likely to decrease in 2009, pulling down GDP growth (4 percent). Inflation will continue to rise in 2008 (9.8 percent) and start coming down in 2009 (9 percent).
In the UAE, the GCC’s most diversified and open economy, domestic credit expansion, high population growth (6 percent), infrastructure spending and the vibrant non-oil sectors (8.2 percent) supported growth (6.8 percent) in 2008. Thanks to Abu Dhabi, home to 90 percent of UAE’s oil wealth, current account and fiscal surpluses are sizeable (23 percent and 30 percent of GDP, respectively) in 2008. Inflation is likely to increase this year (11.8 percent) and start coming down next year (10.5 percent).
Credit crunch and global downturn will hit UAE’s open economy and growth will slow down in 09 (4.5 percent).
Qatar, with both its oil and non-oil sectors growing at double-digit speed, will remain one of the fastest-growing markets in 2008 (14.5 percent real GDP growth). As the largest exporter of LNG in the world, the country will continue to benefit from the hydrocarbon boom, piling up large external and fiscal surpluses (40 and 13.2 percent of GDP, respectively) this year. It has the fastest-growing population in the GCC (18 percent) and a significantly undersupplied real estate market. Supply bottlenecks and deeply negative policy rates will push inflation higher in 2008 (15.6 percent). Qatar’s investment driven, capital intensive growth will face headwinds in 2009 with credit crunch and global economic downturn (9.5 percent).
The Kuwaiti macro story continues to be driven by oil, which affords the state the largest surpluses in the GCC region. The lack of political determination for diversification has caused Kuwait to lag most of its GCC neighbors so far (GDP growth: 5.6 percent in 2008). Still the huge amount of cash and still-pending projects kept the medium-term outlook strong. Inflation as elsewhere continues to climb (9.7 percent in 2008). Although Kuwait abandoned the dollar peg and adopted a basket in 2007, the appreciation is still modest and interest rates continue to come down.
In Oman, with declining oil output, the economy is being propelled by services and gas-based industries in 2008 (6.4 percent). High oil prices helped Oman post strong external and fiscal surpluses (6 percent of GDP and 10 percent of GDP, respectively) but going forward revenues will be eroded unless the Sultanate is successful in boosting hydrocarbon output. Despite a $15 billion investment plan for the oil and gas sectors, the outlook is less than rosy with high recovery costs and limited reserves. Inflation (12 percent) is pushed up by food and rent prices, along with negative real interest rates that boost bank lending.
In Bahrain, the non-oil sector remains the main driver of the resource-poor economy. While the country’s long-held status as a banking hub is being eroded by Dubai, the financial services, manufacturing and tourism sectors remain the focus of the ongoing diversification plan. With limited petrodollars, the budget surplus should stay modest (7 percent GDP) by regional standards, while the current account surplus (21.5 percent of GDP) will be boosted by oil exports thanks to a large refining capacity. While inflation should continue to rise in 2008 (5.5 percent), it will be the region’s lowest as the country remains a more mature diversification story.
