Saudi Arabia undertook a $400 billion five-year spending plan in 2008, the largest fiscal stimulus package as a ratio of GDP (gross domestic product) in the G20 according to the IMF (International Monetary Fund), predicated on central bank foreign assets of $411 billion, more than 111 percent of 2009 GDP. While Saudi Arabia posted a small budget 2009 deficit, the state has also reduced its debts since 2002 and should continue this year. Government debt to GDP is estimated to fall to 13.2 percent in 2010, the report said.
Oil prices within the $70 range offer ample fiscal stimulus for the Gulf economies. Confidence, bank lending and lack of private sector appetite are a dampener to growth. Inflation is not a major concern so far, as domestic demand is low and the US dollar is firm.
Oil prices averaged $77 a barrel in the first two months of 2010 and have risen above $80 a barrel in March and so far in April, supporting a cautious recovery in Gulf countries. "The biggest hurdles facing the oil-exporting region are stagnant bank lending, lack of private sector appetite, uncertainty over the depth of Dubai's debt troubles and the extent of new non-performing loans on bank balance sheets. While 2010 will be a year of cautious recovery, differentiation is unfolding in the Gulf, and Saudi Arabia holds the healthiest macroeconomic outlook, followed by Abu Dhabi and Qatar," John Sfakianakis, chief economist for the Middle East at Credit Agricole (C.I.B.) said.
Saudi oil export revenues should enable current account and budget surpluses in 2010. Gross external debt is among the Gulf's lowest and existing government debt is all domestic. Recently, Saudi Arabia has exhibited no asset bubbles and a new mortgage law, which is in the final stage of implementation, should provide more supply in the medium term for housing and financial intermediation for banks. The Saudi growth story is supported by a population of 25 million, including 7.5 million expatriates, growing at 2.5 percent per year. Positive trends are visible in bank credit data and foreign trade, with imports and nonoil exports recording their strongest levels of 2009 in December.
According to a report issued by the Ministry of Economy and Planning last week, Saudi Arabia's nonoil exports in January 2010 grew by 21 percent to SR9.58 billion compared to SR7.93 billion for the same month in 2009.
While assessing the other GCC economies, the report said the UAE economy is recovering more slowly as a result of a sharp real estate downturn due to the Dubai World debt fiasco and lower domestic demand. Abu Dhabi, holder of the bulk of UAE oil reserves, is wealthier and less in debt than Dubai, and is likely to witness GDP growth of 3.8 percent in 2010 as Dubai's GDP contracts.
Qatar is poised for the world's fastest GDP growth in 2010 (19.2 percent) as it brings more natural gas output on stream, but it is still caught in a deflation cycle stemming from property price drops that are likely to continue this year as supply rises. Qatari consumer prices fell 4.7 percent in 2009, and deflation in January stood at a 5.7 percent. The UAE continues to witness low inflation, estimated to average 2.4 percent in 2010 against 1.6 percent in 2009.
Elsewhere, inflation is picking up due to accelerating food prices globally and firm rents in some markets. Saudi inflation rose to 4.6 percent in February, while in Oman, where inflation fell below 1 percent late last year, it rose to 1.7 percent in January. In March, Saudi inflation edged higher to 4.7 percent, driven by food cost, official data showed last week.
Kuwait's Parliament passed a $104 billion four-year development plan in February aimed at reducing dependence on oil and to stimulate the private sector. To complement the plan, the central bank cut its benchmark discount rate to 2.5 percent.
The Credit Agricole report said these positive measures support forecast for GDP growth of 3.8 percent in 2010 after an estimated 2.7 percent contraction last year. Economic growth in Oman is likely to rise to 3.9 percent in 2010 from 1.6 percent in 2009. Oman, which has been committed to diversification efforts, has been well-insulated from the global financial crisis and Dubai debt.
Bahrain's GDP is likely to grow 3.6 percent in 2010 as investments, services and tourism strengthen, the report added.
"The general diagnosis of the economic climate is that it seems to be stabilizing. In developed countries, a partial recovery is currently under way. This is definitely a recovery insofar as the indicators clearly show that growth has resumed, and probably on a lasting basis," Sfakianakis said.
He said in emerging countries, the prospects were more flattering. GDP growth is forecast to run at around 6 percent this year and next - slightly less initially, slightly more thereafter. Although Asia still takes the lead, with forecasts in excess of 7 percent, the biggest changes are to be seen elsewhere, with the shift from severe recession in 2009 to honorable growth rates, at least, in 2010.
