Sunday, November 15, 2009GCC economies expect full recovery in 2010
The economies of Gulf oil producers are expected to stage a full recovery in 2010 as they will net more petrodollars from high prices and an increase in their oil output because of global recovery, according to a Western study.
Oil prices could average nearly $72 (Dh264.45) a barrel in 2010 compared with nearly $62 in 2009 while the GCC economies could trail recovering global economies, said the study by the Institute of International Finance (IIF), which groups many major Western banks.
The report showed the improvement in oil export revenues would boost the GCC's fiscal and current account surplus while better financial and economic conditions would allow them to overcome family default problems.
"Our baseline projection for 2010 for the GCC assumes modest global recovery – growth of 2.6 per cent – average oil prices of $72 per barrel, and that the impact of the troubled family-affiliated conglomerates on banks is contained," it said.
But it noted that the recovery of the global economy in 2010 is expected to be sluggish, particularly in advanced economies, as financial systems remain impaired, and households will rebuild savings.
Despite recent signs of the onset of recovery in many parts of the world, the global economy is still expected to contract by 2.5 per cent in 2009. By later this year, the combination of easing monetary and expansionary fiscal policies should begin to yield some results, and the forecast remains for a return to modest global growth in 2010.
"As advanced economies move out of recession and global demand for oil recovers, a rebound in oil production of around three percent in Kuwait, Saudi Arabia and the UAE will be reflected in an overall real GDP growth rate of 3.5 per cent in these countries," said the Washington-based IIF.
The report expected Qatar's growth rate to exceed 30 per cent, driven by 60 per cent rise in gas production.
"GCC activity in the non-hydrocarbons sector will continue to be supported by government spending on infrastructure and social sectors," it said.
While the private sector will recover modestly, it will grow at a much slower pace compared to recent years.
"Past experience shows that private investment tends to recover slowly from downturns, especially those that involve financial stress.
Turning to Inflation, it expected the rate to decline to two per cent this year before rising slightly to three per cent in 2010. It said cost-push pressures from a more-than-expected weakening of the dollar against major currencies over the next few months, and a modest recovery in non-fuel commodity prices would add limited inflationary pressures next year.
It showed that weak domestic demand, the correction in housing-related prices and the fall in global commodity prices have brought down the 12-month inflation rate from over 13 per cent in July 2008 to only three per cent in July 2009.
"Continued slackening in the GCC economies will dampen domestically driven inflation pressures in 2010."
The report expected the combined GCC current account and fiscal surpluses remain sizable in 2009 and 2010 despite a decline in the region's oil income. It showed the GCC's revenue from oil would plunge from around $575 billion in 2008 to $327bn in 2009, before recovering to $421bn in 2010.
"The current account surplus will shrink from $268bn in 2008 to $49bn in 2009, and then recover to $122bn in 2010. Foreign assets will increase to $1.55 trillion by end-2010 [excluding asset valuation changes]," it said. "The fiscal position will also remain in large surplus of about $140bn in 2009 [13 per cent of GDP], despite a continued rise in government spending. This, however, is half the size registered in 2008."
According to the study, the banking sector in the GCC, which controls 45 per cent of the world's oil, played a central role in the rapid growth during the boom years (2003-2008), and it holds a key to the speed of recovery from the current crisis.
In H2 of this year, several major banks in the region are expected to show further profit declines or even some losses following the recent rise in provisions against growing level of NPLs, it said.http://articlesofinterest-kelley.blogspot.com/2009/11/gcc-economies-expect-full-recovery-in.html