GCC will withstand global turmoil says report
Dubai, September 23, 2008
The GCC economies, although not unaffected by the recent turmoil in global markets, will withstand the challenges posed by the crisis, says a report.
The region’s macroeconomic outlook will remain solid going forward despite a global economic slowdown, said the EFG Hermes report.
It said oil prices are forecast to remain historically high and the region is further protected by the low budget breakeven oil prices.
The report forecast that 2008 will be a record year for GCC economies, with oil revenues reaching their peak. 'We have not reduced our real GDP growth forecasts, as we do not envisage a marked cut in oil production for the remainder of the year. We have, however, marginally reduced the nominal GDP growth of the region as a result of a weaker fourth quarter oil price,' said the report.
Although the economic figures will deteriorate in 2009 as oil prices and production levels fall, economic activity on the ground will remain buoyant. Most oil revenue earned by regional governments does not enter the economy, but rather is invested overseas. With fiscal positions remaining expansionary, the level of oil revenues injected into the economy will continue to increase, it said.
There will be a slight moderation in credit and money supply growth rates in the second half of 2008 and in 2009 from peak levels - although these will still be high - following recent increases in interbank rates. Interbank rates are still below 2007 levels, and funding rates are still attractive. We believe liquidity constraints will not hamper the investment program or growth outlook. Regional central banks will intervene to maintain liquidity in the banking sector if it becomes too constrained, the report said.
The key risk to this outlook is a substantially sharper-than-expected fall in global oil prices, it said.
'However, we emphasise that the weighted budget breakeven oil price for the region is around $55 per barrel for Brent crude, with higher levels resulting in the budgets remaining in surplus. We believe that as long as Brent crude remains above $60-65 per barrel, government spending will remain expansionary and the investment programs will stay on track. While oil prices have pulled back from their peaks near $150 per barrel, we believe they will remain far above the $60-65 per barrel levels, noted above.'
Although the economic figures will deteriorate, government expenditure will remain expansionary for the remainder of 2008 and in 2009 and
will support domestic demand and the performance of the non-oil economy, the report concluded. - TradeArabia News Service