In the wake of the unrest grappling the Arab world, a renewed hope and calm has been restored to the GCC economies and financial markets, thanks to swift policy action. In the face of uncertainty, investors are looking at improved growth prospects in the region. This fact is reverberated by a recent report by Saudi Arabia’s National Commercial Bank (NCB).
The report revealed that economies in the GCC are set to see average growth of six percent this year, followed by five percent growth in 2012. The strong performance will be led by Qatar, which is at the final stages of natural gas development boom, and Saudi Arabia, the bank’s chief economist Jarmo Kotilaine said.
He said the UAE was also set for a rebound thanks to its success in addressing pressure points linked to its sovereign and quasi-sovereign debts as well as signs of normalisation in the battered real estate sector.
However, Kotilaine added: “The key question going forward has to do with the pace and composition of the recovery. Even as the headline growth figures are set to significantly exceed expectations, the momentum promises to be largely underpinned by oil market tightness and increased government spending.
“Signs of a private sector turnaround are multiplying, but the region remains vulnerable to global uncertainties.”
The most important risks pertain to the creditworthiness of the US, the debt crisis in the Euro-zone, and the mounting inflationary pressures in key emerging markets, he added.
The report said that even as economic growth is accelerating, the GCC appears to be experiencing something of an inflation respite.
Following a significant increase in price pressures in 2009-2010, inflation has broadly stabilised although it remains significantly higher in Saudi Arabia and Kuwait – around the 5 percent mark – than in the rest of the region where housing market weakness has kept price pressures at low levels.
“No major pick-up in inflation is likely, although the sharp increases in government spending and dollar depreciation are a concern,” Kotilaine said.
He added that bank lending was growing fastest in Qatar, Oman, and Saudi Arabia but the pace is still historically moderate, especially in real terms.
Even against the backdrop of economic risks, the regional infrastructure boom is showing no sign of slowing down, NCB said, adding that aviation and seaports were key areas for growth.
The International Air Transport Association (IATA) now sees the Middle East as the world’s fastest growing market and expects air passenger numbers to increase by 9.4 percent a year until 2014.
World Bank forecast
According to a recent forecast by the World Bank, GCC countries are on course to maintain strong economic growth exceeding five per cent in 2011, while the wider Middle East and North Africa region faces a slower growth of 3.6 per cent as soaring fuel and commodity prices stoke inflation.
The World Bank said that current economic disruption in many countries in the region is translating into lower growth ? at 3.6 for 2011, down from five per cent ? in the short-term but that opportunities in the medium-term offer new hope for an inclusive and sustainable development that has not before been seen in the region.
However, there are ?historic opportunities for greater openness and citizen participation in economies across the Middle East and North Africa that, if strongly managed over the transitions ahead, could see a significant boost to economic growth and living standards in the medium term,? said Shamshad Akhtar, World Bank Vice-President for the Mena region.
These positive reports about the region is instilling a new confidence in potential investors, who are now willing to invest in the GCC, after seeing calm in the political turmoil.
Sources: arabianbusiness, khaleejtimes, cpifinancial