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NONOIL SECTOR BOOST

Oman real GDP growth to hit 4.5pc in 2015

MUSCAT, November 16, 2014

Oman's real GDP is expected to grow by 4.5 per cent in 2015 mainly driven by a strong non-oil performance averaging seven per cent as the government’s diversification ambitions begin to have an impact, said a report.

Oman's real GDP is expected to grow by four per cent in 2014 and 4.5 per cent in 2015, driven by a strong non-oil performance averaging seven per cent over the forecast period as the government’s diversification ambitions, focusing on the tourism, industrial and manufacturing sectors, begin to have an impact, said a report.

The non-oil activity will be driving Oman’s growth in the coming years, according to the report by National bank of Kuwait (NBK).

With conservation in mind, the Omani government has opted to manage its crude oil reserves by limiting production, shifting its focus to diversifying its economy.

The public deficit is expected to widen as investment expenditures begin to take off and revenues recede because of declining oil prices. In tandem, a contraction in the current account surplus is expected on the back of a growing energy import bill, stated the NBK in its report.

Credit and the stock market are expected to benefit from the boost in aggregate demand, the latter supported by the $30 billion worth of projects to be executed over the coming years. This is sizable compared to an estimated GDP size of $80 billion for 2013, it added.

Oil production averaged 942,000 barrels per day (bpd) in 2013, up 2.6 per cent year-on-year (y/y). It is expected to grow at a tepid pace this year and the next; the government announced its intention to maintain oil production between 950,000 and 960,000 bpd for the next five years.

An increased use of gas-intensive enhanced oil recovery (EOR) practices will be needed to achieve this extraction rate given Oman’s ageing wells, stated the report.

Current gas production falls short of the country’s domestic demand, with the country importing gas from Qatar to fill the gap. The lack of adequate feed stock has also impacted Oman’s ambition to expand of exports capabilities.

While well depreciation could see this supply gap persist, Oman is investing in new gas reserves that could help boost output. Current readings of gas production point to continued decline with average daily output contracting by 8 per cent during the first half of the year. In an effort to tap new gas reserves, the government has prioritized the development of the BP Khazan tight gas project, expected to come online in 2017.

However, with imports expected to remain necessary, Oman is talking with Iran on building a new gas pipeline that would help loosen supply constraints.

Ambitious development goals and diversification will continue to pressure Oman to efficiently manage its maturing hydrocarbon resources. Oil GDP growth is expected to slow to 0.8 per cent this year and 0.5 per cent the next, from 2.8 per cent in 2013.

0Headline inflation averaged 1.1 per cent in 2013, the lowest since 2005. Growth was withheld by timid increases in housing and transportation, which make up 46 per cent of the basket of goods. Core inflation, which excludes housing and food, registered a deceleration as well, averaging 0.6 per cent in 2013.

Current headline inflation remains low, standing at one per cent in August and averaging 1.1 per cent year-to-date. Receding food prices, following an international trend, and transport prices continue to apply downwards pressure, while modest movements remained prevalent in the rest of the subcomponents.

The real estate sector is expected to drive future inflation up. Recent housing data revealed that the traded value of properties in the sultanate has almost doubled in the second quarter from a year ago.

In addition, Oman’s population has grown exponentially in recent years, topping four million inhabitants in April, and is expected to continue to attract foreign workers despite recent limiting measures. The CPI is expected to average 1.5 per cent in 2014 and 3.0 per cent in 2015, said the NBK in its report.

Provisional numbers saw 2013’s fiscal surplus registered close to expectations, on the back of a steadily expanding expenditure bill. The surplus stood at 0.9 per cent of GDP.

"We expect a gradual decline in the fiscal balance ahead. The government’s intentions to cap hydrocarbon output will increase its sensitivity to international oil prices, which are expected to decline over the forecast period," stated the report.

According to NBK, the current expenditures are expected to increase this year following the unbudgeted purchase of missile defence systems and wage standardisation in the public sector.

Meanwhile capital expenditures, which will include some of the $1 billion Oman-Iran gas pipeline, should see a strong pick up as Oman continues to pursue its vision of a diversified economy.

As a result, total expenditures may grow by a yearly average of five per cent over the forecast period. Oman is expected to be in deficit by 2015, and to break even in 2014, it added.-TradeArabia News Service




Tags: Oman | growth | Real GDP |

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