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GCC Should See Uneven Pattern of Growth This Year

Middle East : 19 April 2011

Dubai may be the exception to the norm as the emirate benefits from turmoil in the region.

The largest bank in Saudi Arabia states that surging oil prices as a result of unrest in the region will be good for economies in the Gulf, although uneven growth patterns are expected on the back of lower investor confidence levels and slower credit from area banks.

The NCB (or National Commercial Bank) sent a study to local media Emirates 24/7 indicating that Dubai will likely see the benefits of the long-stagnant Bahrain real estate market still reeling from the unrest.

The study also stated that the political turmoil spreading across the MENA region would dampen the current year’s promise of full recovery after the earlier crisis. The economy bounced back in 2010 as a result of strong oil prices and rising public spending concentrated in the GCC member states.

The instabilities recently seen across the Middle East and Northern Africa put the government spending under the microscope, reinforcing which were the main driving forces of the 2010 recovery. Rebounding oil prices boost confidence levels, however the mood of investors has been put to the test by political turmoil and repeated concerns over worldwide levels of growth, according to the lengthy study on the GCC members.

It is necessary for the Gulf region to experience a certain period of caution and uncertainty from investors. The turmoil has not simply affected the region in a negative way, nor has its effects been spread equality across the region. Dubai specifically has seen plenty of capitalization opportunities as investors have reassessed their opinions on Bahrain and created enhanced levels of cost competitiveness in Dubai.

In general the rising oil prices, which may continue for period of time, are creating a windfall in revenues for the oil producing nations in the region.

The study noted that although it is preemptive to measure the final economic costs that the recent turmoil in Bahrain has caused, the kingdom has obviously been affected in a way that may have prolonged negative consequences.

It also noted that real estate investment levels that are rapidly rising, along with increasing financial services investments, present areas of vulnerability in the region.

These trends have driven levels of anxiety even higher in general, specifically among those foreign investors that utilize portfolios. The bourses within the region have also seen serious hits.

As undesired as it is, these conditions look as if they will continue due to a pattern of subpar growth in the equity markets, according to the study.

In regards to oil, the study stated that the GCC members hold the world’s leading position and have the ability to respond to a crude production shortfall. This means that even if efforts are made to dampen the rising oil prices, the regional producers will still achieve higher revenues through production levels.

The positive conditions in oil allow the governments in the GCC region to go ahead with plans for spending despite uncertain times.

As risks linger and grow, the current conditions that include both caution from investors and activity from the government might result in a period of uneven growth, likely a repeat of what has happened over the last year. As global inflation pressures mount and the region experiences political unrest consumer confidence and economic recovery will be put to the test. It may even be contained. This may only happen in certain areas and for a certain period of time, but it is probable that the private sector normalization will slow as a result.

There is also a risk that this situation may curb the resurgence in lending at the bank, an important condition that needs to preclude normalization within private industry. The study did note that despite these risks, strengthening oil prices and rising government spending would result in accelerating growth in headline GDPs across the region, notably in Saudi Arabia.

NCB stated that although price pressures and rising uncertainties are linked in the Middle East region, fundamentally they are supported by structural factors and rapidly strengthening demand. The results of the earthquake in Japan are also linked to pricing pressures.

The bank also noted that stats from the United States EIA (Energy Information Agency) indicate that worldwide demand for liquid fuels and crude oil increased by 2.4 million bpd (barrels per day) in 2010, reaching a total of about 86.7 mbd.

This annual increase was nearly the largest seen in the last three decades and more than makes up for reducing demands over the two years prior. It also surpassed the 2007 total of 86.3 mbd, according to the study.

Although significant and lasting resolutions of the unrest in the MENA region may restore the relative stability and turn oil prices the other way in the short-term, the study states that there is nothing significant within the GCC oil producing nations that suggests they will not continue benefiting from profitable price levels and increasing production.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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