Among the region’s leaders, Saudi Arabia’s $450 billion economy is expected to accelerate growth to 4.3 percent this year from an estimated 3.6 percent in 2010, according to a median of seven economists polled by The Media Line. Egypt, whose gross domestic product reached about $220 billion in 2010, will grow 5.7 percent, hastening from 5.1 percent in 2010, the forecasters say.
Qatar, a relatively small economy with a GDP of about $55 billion, is evolving into a major regional factor, propelled by rapidly growing energy revenues. Five forecasters surveyed by The Media Line see economic growth slowing but remaining well into the double digits — a median forecast of 14.3 percent this year versus 16 percent in 2010.
“Oil prices are approaching $100 a barrel and this is going to create a very strong tailwind to government expenditures, which will lead to economic growth in the Gulf region,” Farouk Soussa, Middle East economist for Citigroup Global Markets, told The Media Line. “There’s a lot of money being spent by governments regionally.” The price for a barrel of Brent crude oil for delivery in February traded at $93.33 on Friday. Imad Al-Atiqi, a member of Kuwait’s Supreme Petroleum Council, told Reuters that speculation could push oil to $110 per barrel within a few weeks. The climbing price has enabled the oil-soaked economies of the Gulf to embark on giant infrastructure development projects.
Qatar, which will have to invest heavily in transport infrastructure, hotels, stadiums and housing to host the 2022 World Cup tournament, has budgeted $250 billion for development over the next15 years. Kuwait has set aside $104 billion for development between now and 2014 and Oman about $80 billion over the next five years. Saudi Arabia is in the process erecting five new economic cities on its desert sands.
That not only lards the Gulf economies but also gives a boost to countries with little or no oil as brisk economies import foreign workers to supply services and use their excess capital to invest around the region, especially in places like Egypt, Jordan and Lebanon.
Egypt, for instance, is expected to increase government spending to sweeten voters ahead of presidential elections in September, says EFG-Hermes, a Cairo based investment bank. As a result, it expects government spending to increase 11.6 percent across the Middle East this year.
The largesse, however, won’t be enough to lift the region into the ranks of the world’s top economic performers.
Global emerging market economies are likely to show a slowdown from their 2010 pace, with the median of six forecasters surveyed by The Media Line seeing growth slow to 6.4 percent this year from 7.2 percent in 2010. But, among the economies covered in The Media Line survey, only Qatar is likely to exceed the emerging market median.
Turkey, which is undertaking a strategic political and economic shift away from its traditional European partners to the Middle East, is likely nevertheless to see GDP growth slow to 4.5 percent in 2011 from an estimated 7.8 percent in 2010, according to seven forecasters polled by The Media Line. Unlike much of the region, Turkey’s growth won’t hinge on oil prices, but on domestic demand and borrowing.
Meanwhile, the United Arab Emirates (UAE) remains the poorest performer among the economies surveyed by The Media Line. Dragged down by some $110 billion in debt and a hugely overbuilt property sector in Dubai, one of the federation’s seven emirates, the UAE will see growth of 3.2 percent this year, according to the median estimate of seven forecasters in the poll.
Nevertheless, that will be an improvement over 2 percent in 2010. Dubai’s other economic sectors — trade logistics, services and tourism — are coming back to life, said Shady Shaher, Dubai-based economist for Britain’s Standard Chartered Bank. Meanwhile, its fellow emirate, Abu Dhabi, is using its petroleum wealth to finance glittering projects like world-class museums and other high-end attractions at a cost of about $27 billion to diversify its economic base.
“Infrastructure will be key driver for growth, although OPEC caps will limit oil production,” Shaher told The Media Line. “Still, we’re very optimistic by where Abu Dhabi is going.” Last week Kuwaiti Oil Minister Sheikh Ahmad Al-Abdullah Al-Sabah said he didn’t expect the Organization of Petroleum Exporting Countries (OPEC) to meet before June unless “something dramatic” happens and didn’t expect an increase in output in the first half of 2011, Reuters reported.
The Middle East has other potential trouble spots to be concerned with. Lebanon’s economy is forecast by EFG-Hermes to expand 5 percent this year, adding to an estimated 6.5 percent increase in 2010, but the growth is jeopardized by a political standoff between the government and the Hezbollah movement over a United Nations investigation into the 2005 assassination of then Prime Minister Saad Hariri.
Political analysts have warned that the Hariri tribunal, which is reportedly ready to indict Hezbollah officials, may spark internal fighting or a conflict with Israel.
“Until we have a resolution of the Hariri tribunal issue and until security can be enhanced along the border with Israel, there’s always a risk of conflict in Lebanon and that will have the negative impact on our expectations for the country,” said Citi’s Soussa.
Another risk for the region’s economies comes from inflation, created by higher food prices. Right now, consumer prices remain “subdued” in most of the region, Barclays Capital said in a December report. In Saudi Arabia, for instance, inflation will remain almost unchanged from 2010 to 2011 at about 5.6 percent, five forecasters estimated.
In Egypt, however, consumer prices will exceed 11 percent in 2011 as they did in 2010, according to the median of six economists polled by The Media Line. Turkey will continue to see relatively brisk inflation, even if it decelerates to 6.4 percent from 8.7 percent in 2010, five economists polled by The Media Line forecast.
Food prices remain a sensitive issue, especially in poorer countries where it makes up a major component of household costs. In Algeria, CNN reported Sunday that at least three people were killed and 300 injured in riots prompted by spiraling prices of basic food items. In response, the government slashed duties for sugar and oil by 41 percent.
