Mar 28 2012
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GCC economy "returns to normal" after 2011 high growth
Growth this year will be achieved due to high public spending by most members of the six-nation Gulf Cooperation Council (GCC) as well as strong oil prices and recovering bank lending, National Commercial Bank ( NCB ) said.
In a study sent to Emirates 24/7, it said the GCC economies, which account for just less than half the total Arab GDP, generally expected a year of robust growth in 2011 following the surge in oil prices to record high levels and increased production which in turn supported ambitious government spending plans.
The result was regional growth of some 7.2 per cent, led by an estimated 18.7 per cent in Qatar, seven per cent in Oman, and 6.8 per cent in Saudi Arabia. Even the UAE, the second largest Arab economy, made significant headway in terms of increased private sector activity, greater confidence, and progress in contain problems in areas such as real estate, it said.
It expected that more positive progress, however gradual, is likely to materialize in the private sector where bank lending is recovering, supported by financially healthy institutions, and capital markets have regained much of their momentum. "Nonetheless, due to a base effect alone, the headline GDP growth rates will probably fall back to the neighborhood of four per cent. For most regional economies, this is likely to mark effectively a return to the norm," NCB said.
"Is spite of the generally benign growth outlook, potential vulnerabilities remain numerous. Regional risks are mainly external in nature with potential discontinuities due to the situation in the Euro-zone."
The report noted that although the GCC economies are relatively protected in terms of exports, any relapse would tighten the financial markets during a year of substantial refinancing requirements and revive oil demand erosion concerns.
In the broader Middle East region, the posturing around Iran remains a source of recurrent market tension and potential discontinuities, it said.
"Within the GCC, the main structural weaknesses are linked to the generally depressed real estate markets, especially in Bahrain and the UAE, as well as the persistent high leverage of especially UAE entities."
"Because of the spending commitments and concern over the uncertain global economic situation, the fiscal stance of most regional governments should remain fairly permissive, underpinned in part by strong oil prices. The main challenge posed by the permissive fiscal policy, which in many regional economies has tended to go hand in hand with a degree of overspending, is the growing dependency on high oil prices."
NCB said that although oil prices assumptions used in GCC budgets tend to be comfortably below the current market price, the margin has shrunk significantly.
"In practice, the hydrocarbons rich regional economies have substantial cushions, along with low levels of government debt, that will enable them to weather periods of deficit spending," it said.
© Emirates 24|7 2012
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