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High Price of Oil Helps Gulf Economy Recuperate

Middle East : 03 August 2010

The price of crude is staying steady at $75, supporting the recovering global economy

Oil-rich nations across the Gulf are experiencing better economic stability almost 24 months beyond the global-wide financial meltdown that deflated economies and the price of crude.

The autumn months of 2008 saw the world’s financial calamities hit the Gulf region, the inflated Dubai property market struck down from its perch as their reigning area of growth and the surrounding nations suffer as the price of crude plummeted.

Oil prices went from higher than $140 a barrel in 2008 to a low near $30 a barrel in the early months of 2009.  They have since recovered decently and sit near $75 with the worldwide economies strengthening.

Eckart Woertz of the Gulf Research Centre commented that the economies around the Gulf are integrated with the global situation and that this recovery is positive given the high amount of exports Gulf countries depend on.

The head of economics said that the Gulf region is a capital net exporter and enjoys lower ratios of government debt to GDP when compared with other regions.

In 2009 the economy of the UAE had a 0.7 per cent contraction caused by the “drag” in real estate around Dubai, as reported by the International Monetary Fund.  That sector is expected to remain slow in 2010.

Other opinions state that because Dubai is not an oil producer they could not adequately fend off the economic troubles.  Chief Economist Simon Williams of HSBC Middle East also stated that Dubai’s more open policies towards global markets lowered their risks when compared to conservative surrounding regions.

Williams stated that the economic structure in Dubai had a large part to play in how the crisis impacted the area.  Without oil production, Dubai is much more entwined in worldwide economies and also took on more leverage before the crisis hit.

This explains why Dubai was hit harder that oil-rich countries with more isolated economies.

After the global debt disaster the area’s stock market experienced a sharp decline, but that drop was mostly finished by the close of 2009, according to economists at the IMF in July.

IMF expected a 4.3 per cent rise in non-hydrocarbon economies across the GCC countries in 2010, based on expansion strategies and an increase of 4.8 per cent in oil outputs estimated to line up with worldwide recoveries.

In May the IMF predicted that the Gulf nations would see growth rates of 4.9 per cent and 5.2 per cent in 2011. That was assuming that the projected price for oil would hover around $80 to $83 per barrel for 2010 and 2011 and compared to only 0.8 per cent growth in 2009.

Williams noted that the collected GCC growth rates are skewed by the much larger rate of growth Qatar is enjoying.

Since Qatar is expanding so rapidly due to the LNG exports, the average growth rate for region in 2010 is inflated, said Williams.

That emirate is expected to grow at a staggering rate of 18.5 per cent in 2010 and 14.3 per cent in 2011, according to the IMF.

Williams noted that when you take the growth of Qatar out of the equation or simply look to the domestic demand the figures drop.  They actually land below the levels seen before the crisis and are weaker than other emerging markets.

A long awaited currency union and other Gulf financial integrations have been put on hold due to the economic meltdown.

Williams saw those integrations well on their way to fruition before the crisis hit, mainly through the increase in capital flows.  Now, with conditions as they are, the idea of a single currency is not seeing much action.

The hoped-for union seems to be struggling already, with the UAE and Oman not on board.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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