MANAMA: The Gulf Cooperation Council (GCC) countries still offer a safe haven with their mounting oil windfall. Oil prices at $130 a barrel add $1 billion a day to the region’s current account surplus, according to Merrill Lynch’s latest report. The report titled “Economic Analysis: Emerging EMEA Macro Weekly” said: “With surging liquidity and deeply negative real rates, monetary policy is extra loose, despite the recent hikes in reserve requirement ratios. While boosting inflation, this macro story should push asset prices higher in the short term, before giving way to asset bubbles in the medium term.”
“GCC is home to 40 percent of the world’s proven oil reserves and 25 percent of natural gas reserves, these surpluses are big and are getting bigger in the GCC countries.
“The GCC macro story can be summarized as the oil windfall continues to boost infrastructure spending; growth is becoming less of an oil story; and inflation is on the rise and presents the key macro challenge. Together with the fiscal prudence of GCC governments, this is a solid macro story, which cushions the storms in global markets and paints a bright medium-term picture, despite the inflation problem.
“One of the basics questions is whether this glittering macro story is sustainable. We believe, for the short-to-medium term, it is. The region still saves 70 percent of its oil windfall, non-oil growth accounts for 80 percent of GDP growth, population growth is at 4-5 percent — thanks to immigration, 70 percent of $2 trillion of investment projects are targeting improvements in infrastructure and sovereign wealth funds’ (SWFs) investment income is gradually substituting oil revenues. “Six GCC countries have accumulated $750 billion over the last five years in current account surpluses, and with oil prices around $140 a barrel, they are likely to receive another $360 billion in 2008 in their external surpluses.”
