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Mideast Oil Exporters To See Slower Growth In 2012

Monday, Jan 02, 2012

-- Lower oil prices, production to slow growth rates

-- Growth in regional oil importing countries seen higher

-- Inflation risks contained

By Leila Hatoum

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--The oil rich countries of the Middle East and North Africa are expected to experience slower economic growth in 2012 as oil prices and production moderate from 2011 levels, though high government spending in the wake of the Arab Spring will continue to keep many economies buoyant, economists said.

In contrast, net oil importers in the region such as Tunisia and Egypt should see a slight recovery, barring major new political unrest, after their economies suffered heavily from lower foreign investment and tourism amid the uncertainty that followed the toppling of their governments in the Arab Spring revolutions in early 2011.

The International Monetary Fund expects growth in oil exporting countries in the Middle East and North Africa to slow to 3.9% in 2012, from 4.9% in 2011, as oil prices weaken on a slackening in global demand and an expected slowdown in the economies of key trading partners such as China and India.

Saudi Arabia and other Gulf producers that ratcheted up oil production in 2011 to make up for lost Libyan supplies are expected to rein back their oil output in 2012 , as Libyan output recovers, resulting in lower revenues.

"The reversal of output hikes to accommodate Libyan supply will affect production, and the oil price may come under pressure due to an expected global slowdown," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

The IMF expects Saudi Arabia's growth rate to moderate to 3.6% in 2012 from as much as 6.5% in 2011.

But some of the effect of lower oil prices and production will be offset by continued high government spending in the oil exporting countries, says Philippe Dauba-Pantanacce, Standard Chartered 's senior economist for the Middle East and North Africa region.

Saudi Arabia and several other Gulf countries ramped up public spending in 2011 in the wake of the Arab Spring, in an effort to deter any spread of unrest to their countries. In March, Saudi Arabia announced a massive spending program involving higher wages and as much as $67 billion to be spent on house building. Even though total spending is budgeted to fall in 2012 compared with 2011, the kingdom plans to step up spending on education, health care and other social programs in its 690 billion Saudi riyal ($184 billion) budget for 2012 announced last month.

"Increased spending on social packages, that has recently been endorsed by the Saudi budget, will support economic growth in Saudi Arabia, given that the Saudi economy remains strongly led by government spending," says Simon Williams, HSBC Bank chief economist for the Middle East and North Africa region.

Meanwhile, the IMF says net oil importers in the Middle East and North Africa region are expected to record 2.6% growth in 2012, after sluggish growth of 1.4% in 2011, helped by lower oil prices and by a gradual recovery from the political instability many of the countries experienced in 2011. The IMF says Egypt should regain some stability after the tumultuous events of 2011, allowing economic growth to recover to 1.8% from 1.4% in 2011, in the absence of further political surprises. Tunisian growth could rebound to 3.9% from zero growth in 2011, according to the IMF.

But the whole Middle East and North Africa region faces substantial risks, including the chance of continued political upheaval and a deepening crisis in the euro zone, which could affect global growth and demand for oil, and lead to higher financing costs for certain Middle East countries.

Conversely, growing tensions over allegations that Iran is pursuing a nuclear weapons program could support oil prices while curbing foreign investment in the region.

"Undoubtedly, 2012 will be challenging for many countries here, with continued political uncertainty, a deteriorating global economic outlook, and higher financing costs impeding a quick economic recovery," said Masood Ahmed, the IMF's director for the Middle East and Central Asia, when assessing the performance of the Middle East and North Africa countries in 2012.

With prices for oil and other commodities falling from their 2011 highs, inflation isn't seen as a major danger for the region in 2012, with the possible exception of Saudi Arabia, where high public spending , increased wages and a shortage of new housing could push the inflation rate up from around 5% in 2011.

Large spending programs in other countries, such as the United Arab Emirates and Qatar, have translated into sizeable wage increases. But inflation in the U.A.E. isn't expected to exceed 2% in 2012, as continued weakness in the real estate market has a moderating effect on headline inflation.

"Global energy, commodity, food prices have come off highs from earlier in 2011 and downside risks dominate the outlook for 2012," said Gokkent at National Bank of Abu Dhabi.

HSBC expects Saudi inflation to cross 6% in 2012, some 3 percentage points above the average in the Gulf Cooperation Council states, on the back of increased public spending and low supply in real estate sector, a major component of the consumer price inflation basket.

-By Leila Hatoum, Dow Jones Newswires; +971-4-446-1686; leila.hatoum@dowjones.com

Copyright (c) 2011 Dow Jones & Co.

(END) Dow Jones Newswires

02-01-12 0604GMT