Inflation may hit Gulf GDP growth
Dubai, August 2, 2007
The high inflation rate in the GCC may lead to a decline in the real GDP growth of the region, according to a report.
"High inflation is adversely affecting the competitiveness of the GCC economies and hampering the diversification of the economies due to difficulties in attracting foreign direct investment," a National Bank of Dubai (NBD) study was quoted as saying by the Gulf News report.
While many small businesses may close down because of the high cost of doing business. Skilled expatriates that constitute the majority of the workforce are leaving the region because of the increasing cost of living, the report said.
Economic fundamentals of the Gulf states suggest that the region will have to live with increasing inflationary pressure in the years ahead, NBD said.
The growing inflation in the region is driven by factors such as high liquidity, low interest rates (negative real interest in Qatar and the UAE), expansionary government spending and strong money supply growth.
In addition, there are other factors such as currencies' peg to the dollar in the context of depreciation of the US dollar against other major currencies and skyrocketing rents that contribute to the region's inflation.