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The GDP in Oman Expected to Grow by More Than 7%

Oman : 21 July 2010

The Arab Organisation for Industrial Development and Mining (the AOIDM) has predicted that GDP growth in Oman will increase by as much as 7.3% this year.

In a report released by the AOIDM, non-oil sector diversification is singled out as the primary boost for growth. Analysts note that this sector of the GDP tripled from the $2.1-billion level in 2004 to $6.4-billion in 2008.

While growth had been comparatively slow during 2009, recovery during 2010 could be bullish and heading for a rise that would be considerably higher than predictions that were made by the government for the year. In January this year the government predicted the rise would be 6.1%, while the International Monetary Fund (IMF) was even more conservative, predicting growth would be only 4.1%.

It has been noted that the AOIDM’s predicted growth figure is nearly as high as the actual growth that was experienced during 2008. This was, of course, a “boom year” for the UAE Gulf region with oil prices souring to near $150 per barrel, which was a record.

Like most of the other Gulf nations, Oman has experienced a steady increase and strengthening of oil prices recently, and the economy is looking good. Used as a benchmark to measure the Gulf’s exports to Asia, oil from Oman has been selling for nearly $75 a barrel. This trading price is considerably higher than the cautious estimation of $50 made by the government in its budget at the beginning of 2010. The impact is likely to result in possibly a reduced deficit or otherwise a budget surplus.

Taking the conservative $50 prediction into account, the budget deficit prediction was initially OR810-million which equates with $2.1-billion. When the government said it expected that oil would reach $45 a barrel, it predicted that the deficit would be OR800-million (or $1.7-billion). Since actual and estimated oil prices will almost certainly be even greater in 2010, and since there is an increasing amount of oil production, it is very likely that this will impact on the deficit that has been predicted.

But if fundamental growth is greater and stronger, there will surely be increased pressures from inflation. When the government released its 6.1% GDP growth figure, it also released a figure for inflation this year, stating that it would average 3.5% during 2010. More recently it has revised this prediction to between 4% and 5%. The latest actual figure released was 3.2% for May 2010.

Just as the AOIDM predictions for growth are higher than the government’s initial predictions, so too are its predictions for inflation. Their latest report says that it could reach 5.2% which is nearly as high as during the so called “commodity bubble” of 2008.

Hamood Sangour Al Zadjali, who is executive president of Oman’s central bank, the upward trend of inflation has been caused by the higher costs of food globally, and also an increased demand in the construction industry for building materials.

Similar factors including the resilient price of oil and the vigorous dollar, which both affect basic costs, also apply to Saudi Arabia where inflation is already at 5.4%.

By all accounts, the monetary authorities in Oman do not intend to change the status of the riyal dollar. But they will certainly be watching the situation closely.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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