MANAMA: The global financial turmoil is impacting GCC economies on three critical fronts, says a key economic research report issued by Gulf Finance House (GFH). Lower crude oil prices, the drying up of foreign capital flows and declining demand for the region’s energy-intensive industrial and building materials will likely put a damper on the fast pace of economic growth seen in the region in recent years.
However, continued robust government spending will help stave off the more severe effects of the global financial crisis and as long as Brent crude oil prices remain above the $60 per barrel mark, the GCC growth story will remain intact, says the GCC Economics and Strategy 4Q08 report.
The GCC banking system, in general, remains resilient with the exposure of domestic banks to toxic assets low across most countries of the region.
“We are reasonably optimistic that GCC economies have weathered the global financial crisis without systemic threats,” said Dr. Ala’a Al-Yousuf, chief economist at GFH, in comments to coincide with the release of the GCC Economics and Strategy report, which is produced quarterly by the Economic Research Department of GFH. It provides an in-depth analysis of the most important global and regional economic developments and their implications for the GCC region. The report is available on the GFH website at www.gfh.com
The GCC has been managing the challenges and the outlook is still positive, the report said. After several years of very high oil prices that allowed strong government spending growth and a broad-based economic boom, the GCC economies have been among the most resilient in the world. Their substantial public and private sector surpluses have enabled them to be in the strongest possible position to weather the financial storm. “Over the next two years, we expect the pace of economic activity to moderate somewhat to about four to five percent inflation should come down,” said Al-Yousuf.
“Barring a protracted fall in oil prices, the six GCC economies will not be exposed to systemic shocks due to solid macro and banking system fundamentals. However, the correction in real estate prices, particularly in the UAE, remains a concern,” he added.
Hany Genena, senior economist at GFH, said the projected fall in oil export revenues suggests that GCC economies will join the fourth and last group of countries (mainly commodity exporters) impacted by the global economic slowdown in 2009, the first three being the US, the G-7 and net commodity importers.