A Reuters poll suggested on Tuesday that the economic outlook for most Gulf oil exporters is getting better thanks to high oil prices that will cushion against any global slump.
Saudi Arabia, biggest Arab economy and world’s top oil exporter, is expected to see an increase in its Gross domestic product (GDP) by 4.5% in 2012, down from 6.8% last year, according to the median forecast in a poll of 17 analysts.
The 2012 growth forecasts come from a December 2011 survey of four Gulf Cooperation Council states. Qatar was forecasted as the top performer with a 6.6% annual clip.
The poll suggested that growth in the region will be slower than last year due to the fact that last year’s unprecedented windfall from oil production as a result of Libyan civil war is unlikely to happen again. The report also raised the 2012 prediction for Saudi Arabia to 4.0%.
“I am not sure people’s views have changed that much on the non-oil economy,” Daniel Kaye, senior economist at National Bank of Kuwait, told Reuters. “I suspect what is going on has more to do with the oil sector and that oil prices are very high, rates of production among key Gulf producers are also very high,” he added.
Many analysts believe the euro zone debt crisis and slowing down of the Chinese economy are casting a negative outlook for the Gulf region. Several GCC firms have recently complained that banks are lending money cautiously than ever, making access to financing harder.
Oil prices are hovering above $125 per barrel partly due to US sanctions on Iran on pretext of its nuclear programme.
The poll noted that US-Iran tensions will give the Gulf monarchies plenty of firepower to support their crude-reliant welfare states – while the wider global economy reels from high oil prices.
The UAE’s GDP, second biggest economy of the Arab world, is forecasted to grow at 3.1% this year, down from the IMF’s estimated 4.9% in 2011. The poll noted that the forecast is unchanged from December last year.
The IMF said in its report last week that the UAE is still reeling from Dubai’s 2009-2010 debt crisis as the property sector is still in a recovery mode and lending has failed to pick up.
As per analysts’ estimates, Dubai and its state-linked firms’ debt stood at $118bn, or 144% of its 2010 GDP.
The poll highlighted the repercussions of US-led sanctions against Iran may also bite Dubai’s economy, whose trade links with Tehran are significant than other states in the GCC.
“Iranian trade can be anything up to 7% of Dubai’s GDP, so if you see a 50% drop of trade with Iran that could potentially be a 3 to 4 percent fall in Dubai’s GDP,” said Farouk Soussa, Citi’s Middle East chief economist.
“The main impact of sanctions has been in terms of financing trade, and that’ll have an immediate impact but in the longer term there are ways of getting around financing issues. So we’re not too worried that the full effect of sanctions will be seen but it could be a drag on growth,” he added.
A separate Reuters poll earlier this month noted Brent crude hovering around $115 per barrel this year, a decline from current levels, with some analysts hoping prices to come down as low as $95.
Reuters poll said such a drop in the oil price would still leave most Gulf states with comfortable budget surpluses. Saudi Arabia is expected to post a staggering surplus of 12.4% of GDP in 2012, well above from 4.8% seen in December’s poll, while the UAE’s surplus would be slightly down at 5.9%. Kuwait is forecasted to post a huge surplus of 20.4% of GDP this year.