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GCC Economies Continue to Expand; Positive Fiscal Numbers Expected in 2012

Middle East : 22 January 2012

Gulf Experienced 7.4% Economic Growth in 2011

The nominal GDP of the Gulf region hit $1.34 trillion, backed by growth in Saudi Arabia, Qatar and the UAE. This figure represents a year-on-year expansion of 7.4 percent last year, an increase of 4.8 percent (or $1.08 trillion) from 2010 according to a report from the National Bank of Abu Dhabi.

The economy of the GCC ranks 14th in the world, behind Australia.

Most of the growth was a result of increased oil production in the UAE and Saudi Arabia, and expansion in Qatar.

Dubai spot oil prices averaged around $105.50 per barrel, a 35.2 percent increase over 2010 prices and above the 2008 peak of $94 per barrel. Nominal GDP in the Gulf is expected to jump by 24.6 percent last year, well beyond the 17.7 percent growth seen in 2010.

GDP contracted in 2009, shrinking by 19 percent.

Group chief economist at NBAD, Giyas Gökkent stated that slower growth rates are expected in 2012 should oil output in the GCC drop as Libyan supply increases. Oil prices may also experience pressure when anticipated global economic slowdowns occur.

Qatar has imposed a moratorium on further developments after expanding the natural gas industry. Boosts from that expansion will grow faint as Qatar reaches the existing targets and the effects of the moratorium are felt.

Real GDP growth in the GCC should hit about 4 percent this year, according to Dr Gökkent. Fallout from the Eurozone sovereign debt crisis will affect that growth, although prospects are unclear.

According to the US Energy Information Administration, oil should hit $100 per barrel depending on the severity of the worldwide slowdown. Based on that forecast, nominal GDP in the GCC should hit $1.36 trillion this year with the nominal GDP of the UAE hitting $344 billion.

Growth in non-oil industries is expected to remain steady at levels seen in 2010. Most of the activities in those industries are dependent on credit growth.

Key Dubai Sectors Experienced 4 Percent Growth

Dubai focused on consolidation in 2011, creating steady growth in many important economic sectors. Debt loads decreased in several leading corporations and confidence swelled, despite lingering concerns regarding slowdowns in other areas affecting the emirate.

Year-end data has not been released, but expectations state that Dubai experienced economic growth of 4 percent in 2011 based on a Saudi American Bank Group report. This growth was supported by strong performance in the service and trade sectors.

Dubai World and other corporate organizations have worked on debt restructuring over the past year, wading through difficulties resulting from the real estate market drop in 2009. Although corporate debt in the emirate remains high, analysts are confident that internal cash resources and refinanced bonds will meet the need.

Dubai remains susceptible to worldwide economic downturn, as evidenced in 2008 and 2009. Since tourism, trade and financial sectors contribute heavily to Dubai’s GDP, a European recession and slowdowns in other areas would certainly impact the economy in the emirate. Dubai has developed hardiness in recent years that would allow the region to ride out tough economic times.

Confidence in the coming year is evident in Dubai, as the government steps up investments supporting growth. The 2012 budget received Sheikh Mohammed bin Rashid Al Maktoum’s approval in December of 2011 and featured infrastructures expenditures representing 41 percent of total spending, with 29 percent of expenditures marked for education, health care, culture and housing.

The budget also targets the deficit as the revenue shortfall estimates stand just below $500 million, less than 50 percent of last year’s shortfall. Total expenditures in the 2012 budget stand at $8.79 billion, with income forecasted at $8.29 billion. This planned deficit reduction should support growth and bolster investor sentiment.

Recovery will be supported by lower inflation levels at the beginning of 2012. Consumer inflation at the end of November registered at only 0.2 percent, after having held steady below 1 percent for nearly all of last year. The property market in Dubai remains subdued and rental prices are experiencing minimal pressure, both key factors in inflation. Certain costs are forecasted to hold steady for 2012, including food, property and fuel, meaning inflation rates in Dubai should continue to be low.

Dubai’s tourism industry has not felt any marked effect from global slowdowns, with passenger levels at Dubai International Airport continuing to rise. Hotel occupancy rates have returned to levels seen in 2007 and revenue per room has increased.

As state-backed ventures reach more manageable levels of debt, and economic conditions continue to improve, Dubai is set for moderate growth in 2012.

Positive Fiscal Numbers Expected in 2012 for the GCC

Strong crude oil prices and improved regional production levels will create positive fiscal conditions in the GCC throughout 2012, according the Global Investment House in Kuwait.

Slight decreases in crude prices and upheaval across the global economy will cause economic slowdown in the GCC, but the real GDP in the region will continue to be positive and return impressive numbers.

Reports regarding the six members forecast a budget surplus of $183 billion for the fiscal year ending in 2012. Surplus estimates for the next fiscal year fall slightly to $179 billion as a result in higher spending.

Saudi Arabia will produce a majority of the surplus, totalling $80 billion or about 45 percent of the 2012-2013 surplus.

Kuwait will record a surplus of slightly below $60 billion, with Qatar coming in at $20 billion and the UAE recording a $18 billion surplus. Oman is expected to record a surplus of slightly more than $1 billion, with Bahrain suffering from a shortfall.

Political conditions have improved in Bahrain, although the nations’ financial sector was hit hard during the turmoil when several investment and banking entities pulled out of the country.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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