Rising Oil Prices Spur Public Spending That Will Drive Growth
Despite the political turmoil in the Middle East and sovereign debt issues in Europe, higher oil prices will result in increased government spending across the GCC region for the second half of the year. Bank lending was slow in the first two quarters, but is expected to pick up.
Chief economist at HSBC, Simon Williams, has maintained his predictions for economic growth in the MENA region over the last three or four months. Growth for 2011 will be between 4.5 and 5 percent, according to Williams.
Public spending will drive that growth over the second half of the year. Williams also feels that private spending will increase as the political situation stabilizes.
GCC member states with an excess of petrodollars, particularly the UAE and Saudi Arabia, are ramping up their public spending. Because of the strengthened economic dynamics in the GCC investor confidence is increasing as well. Various bonds out of the UAE, notably the Dubai government and Emirates Airlines, were successfully launched in June and more are in the pipeline.
Regional governments have already announced spending packages, such as the multi-billion spending ordered by Saudi Arabian ruler King Abdullah back in March. The ruler’s orders included $67 billion for housing alone in order to meet a shortage in the Kingdom.
After sluggish bank lending in the first half of the year, economists expect bank confidence to improve in the second half. Williams expects that the cautious position the banks have taken will slowly dissolve over the next six months. Other experts, such as chief economist Alia Mobayed of Barclay Capital, predict a gradual recovery for bank lending in the second half of 2011. Mobayed expects this to occur in the UAE and Saudi Arabia particularly, as a result of increased public spending and improved liquidity.
Saudi to See Record Nominal GDP and 7 Percent Growth in 2011
The Kingdom should experience growth of around 7 percent in 2011, before scaling back to 4.4 percent for next year, according to a report by QNB Capital.
Higher energy prices will push the nominal GDP of Saudi Arabia beyond the previous record set in 2008. This figure should hit $549 billion next year.
QNB Capital also predicted that the current account, as well as the fiscal account, would report increased surpluses for this year and next.
The current account surplus was recorded at 17 percent of the Kingdom’s GDP in 2010 and is expected to reach around 26 percent of the GDP in 2011 and 2012.
Even with the surge in public spending, the government’s budget surplus should average around 12 percent of the GDP, according to the report.
Increased rental costs and higher prices for food and commodities imported into the Kingdom should push inflation to 6.1 percent this year.
The report stated that inflation should slow down to 4.4 percent in the following year as a result of house construction and deceleration in the prices of international commodities.
The IMF stated that economic growth in the Kingdom would reach 6.5 percent in 2011, an increase from the 4.1 percent seen last year.
Economic activity in the opening quarter of 2011 was stronger as a result of more oil output and increased government spending, according to the IMF. The IMF agreed that inflation would reach about 6 percent this year.
Recent government data, as of May 14, reported 4.8 percent annual inflation this past April as a result of increased transportation and food costs.
Other predictions state similar economic growth would occur in Saudi Arabia. Fitch Ratings reported that a healthy banking industry would drive growth to 5.8 percent for 2011.
Other rating agencies had predicted a stable position for Saudi banks.
Qatar Records Lowest Unemployment Rate for the GCC
Qatar’s 0.5 percent unemployment rate is the lowest in the GCC, although experts predict it will increase in the future.
In Bahrain and Oman unemployment reached around 15 percent, the highest level in the GCC. Saudi Arabia followed with a rate of 10.8 percent.
In the UAE the jobless rate reached 2.2 percent and in Kuwait that figure hit 2.4 percent, according to a report by Al Masah Capital focusing on unemployment in the MENA region.
From a regional standpoint, MENA has the highest rate of unemployment around the globe. Al Masah commented on how the political unrest jolted certain nations in the MENA region.
The Al Masah report stated that high inflation, high unemployment, corruption, a large divide between rural and urban communities and authoritarian rule were the cause of the numerous civil disturbances. According to the report, unemployment significantly contributed to the energy involved in the mass uprisings.
Conditions in the GCC are better, based on the report’s findings, with regional unemployment sitting at 4.2 percent. It also stated that 3.3 million new employment positions are required in the GCC. Currently around 70 percent of GCC jobs fall within the services sector. Across the MENA region only 52 percent of jobs are in this sector and worldwide the services sector accounts for around 43 percent of jobs.
Masah Capital’s CEO Shailesh Dash stated that expats would continue to dominate in the GCC job market, based on the preferences of employers in the private sector. Expatriates are hired more often than nationals due to their higher level of skill, lower salary expectations, increased productivity and accommodating recruitment arrangements.Paul Holdsworth, Staff Writer, Gulf Jobs Market News