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Strong Growth Returning to Gulf Region

Middle East : 24 January 2011

Public sector to drive improvements in credit for 2011.

The Gulf region will experience a surge of growth in 2011 led by the UAE, Qatar and Saudi Arabia, according to data from Shuaa Capital out of Dubai.

In 2011 the GCC region should see surging growth supported by sizeable investments in infrastructure and slow, steady recovery in the activities of the private sector.

Shuaa Capital economist Kathija Haque spoke to the Gulf News and stated that when oil prices climb as projected the region will see the benefits of an increase in funds available for infrastructure investment plans.

The greatest driver of the growth for 2011 and into the future will be spending within the public sector, especially infrastructure spending.

Member states whose governments are committing the highest amount of spending for infrastructure include Qatar, Oman and Saudi Arabia.

In Qatar the economy is expected to swell by 17.9 percent, while in Saudi Arabia the growth should be around 4.4 percent. GDP in the UAE should grow at a slightly slower pace, increasing by 3.1 percent.

Haque noted that the forecasts for growth are dependent on the private sector recovery and activity levels. Deleveraging will also have a heavy effect on the activity within the economy.

Specifically in the UAE, analysts state that recovery hinges on credit growth improving.

The IMF (International Monetary Fund) projects 3.2 percent growth for 2011, although a recent Standard Chartered Bank outlook for the economy forecasted growth of 4 percent.

Standard Chartered economist Shady Shaher stated that moderate improvements are expected in credit conditions over the course of 2011. The Dubai-based economist said this will be due to recovery in the economy and better market sentiment after the debt restructuring plans in Dubai.

Private industry credit in the UAE should grow by around 9.4 percent in 2011 after seeing significantly lower credit growth back in 2009 and in 2010, as stated by Credit Suisse.

There is a brighter outlook within credit for the private sector mainly due to the progress recently made in the plans to restructure Dubai World’s debt.

Credit Suisse analyst Jacqueline Madu stated to Gulf News that expectations for credit growth see it rise to 9.4 percent for 2011.

Credit improvements within the GCC are likely to be driven for the most part by the public sectors, according to Shuaa.

Haque said that public sector demand for credit should continue to be high, even within the UAE. Government controlled entities will see around $20 billion in debt reach maturity in 2011.

This should cause some movement and overflow within the private sector.

Fitch, a rating agency, recently noted that the majority of sovereigns within the GCC have economic stimulus in place – such as government driven infrastructure plans – that are cashing in on the sizeable sovereign wealth funds as well as swelling oil revenues.

The report by Fitch stated that although the loan growth remains low in general due to cautious banks and limited demand, the rating agency forecasts that revenues will climb once the infrastructural projects come through the pipeline and the local economies begin to see the activity.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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