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GDP in the Gulf Set For 4 Percent Growth with Strong Performance in Saudi Arabia and Qatar

Middle East : 04 March 2012

Confidence in the Saudi Arabian Economy Remains High

A recent Ipsos survey placed Saudi Arabia’s economy at the top in terms of confidence, with a score of 86 percent. Sweden’s economy came in second with 72 percent, while Germany and Australia tied for third place at 70 percent. Canada and India both scored 65 percent, tying for fourth spot.

The report revealed that Saudi banks remain capitalized and protected from the stresses resulting from the Eurozone crisis. The Kingdom’s banking system has an average capital adequacy ratio of 17, well above the minimum of 8 as per Basel II.

The foreign liabilities held by Saudi banks has continued to decrease in the last few years, according to the most recent Samba Economic Monitor. At the close of 2011 around SR 75 billion (or $20 billion) of foreign liabilities were reported, equaling 35% of foreign assets. This figure is substantially lower than the 2008 report of 75 percent of foreign assets. As a result of deleveraging by European institutions, Saudi’s foreign liabilities dropped by 20 percent last year.

According to Samba, Saudi’s central bank appears willing to act decisively during uncertain times, as evidenced by the sharp increases in liquidity and banking systems deposits that occurred in 2008 and 2009.

Saudi banks have also remained liquid, reporting a loan to deposit ratio of 80 while other areas in the region are reporting ratios of 100 or more. Due to the Islamic banking practices in Saudi Arabia many deposits do not bear interest, resulting in lower costs of funds.

According to another report, the Saudi economy remains strong and should continue to lead in frontier economies thanks to a low total debt of 58% of GDP, increased spending in infrastructure and higher levels of investment (totaling 23% of GDP).

Saudi Investment Company Expects GDP in the Gulf to Surge by 4 Percent This Year

Forecasts state that the GCC region’s combined GDP will grow by over 4 percent this year, according to Alkhabeer Capital in Saudi Arabia. Qatar is expected to lead the growth with 7 percent, as reported in the investment company’s recent outlook on the global economy.

The second highest growth will be seen in Saudi Arabia, at 4.6 percent, with Kuwait forecasted to experience 3 percent growth, Oman at 2.7%, the UAE coming in with 2.4% and Bahrain recording 1.2 percent growth.

Inflation is forecasted to slow down as global growth and commodities ease. The GCC region controls more than 40 percent of the crude wealth across the globe.

Although frontier economy investors mainly look at inflation and movement in the currency, Saudi has a stable currency pegged to the dollar and ample supply of funds to offset inflation of imports, according to Alkhabeer Capital.

Experts agree that inflation in Saudi Arabia should not go above 4 percent this year, based on Alkhabeer’s outlook on oil prices and the measures put in place by the Kingdom’s central bank.

Equities in Saudi Arabia should produce decent returns with only modest risk, based on the report findings.

Saudi equities have an 11.5 PE in trading, a 3% dividend yield and the potential to deliver a 17 percent price appreciation, placing them among the best picks for frontier economies according to the report.

Nominal GDP in Qatar Hit $172 Billion Last Year

According to estimates from QNB Capital, the nominal GDP in Qatar hit $172 billion (or QR 628bn) last year. Equal to 2.5 percent of the global GDP, this figure represents 12.5 percent of the GCC’s GDP. The nation’s share of regional GDP increased from 11.8 percent back in 2010, and Qatar’s global GDP share was at 2 percent in 2010. These increases are mainly due to last year’s rapid growth in the nominal GDP of the Qatari oil & gas sector, where 48.6 percent growth was reported as a result of surges in production and price. Overall growth estimates sit at 35.4 percent.

QNB Capital stated that total gas production rose by 27.3 percent last year, due to production expansions in LNG (or liquefied natural gas) and GTL (or gas to liquids). Both natural gas condensates and liquids experienced a boost of about 30.4 percent, due to increasing gas output.

Energy prices remain key to growth in nominal GDP rates, and drive trade surplus increases. The international crude oil price benchmark, Brent, rose by 39.5 percent last year. The average price of LNG tends to follow Brent. Estimates from QNB Capital state a 55.1 percent increase in trade surpluses last year, since hydrocarbons represent 85% of exports.

Growth in the real GDP of Qatar’s hydrocarbon sector is estimated to be 18.2 percent, with strong growth in non-hydrocarbons of 19.7 percent. Overall growth estimates sit at 19 percent, with Qatar’s services sector dominating the non-hydrocarbon economy and oil & gas revenues triggering growth across several sectors including financial, logistics and hospitality.

Estimated growth in the manufacturing sector (around 32.5 percent) is a result of continuing expansion projects in the metal production, petrochemicals, and GTL sector.

Government expenditures are expected to increase by 17.4%, hitting $45.9bn (or QR 167bn) in the current budget year, supporting real growth across the Qatari economy. Salaries increases are expected to support the current spending and major project spending is expected to create increases in capital expenditures.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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