Dubai recovery, high oil output to boost UAE growth

GCC to record high growth in 2011

A recovery in Dubai’s non-oil economy will ally with strong crude prices and higher production to lift the UAE’s real GDP by nearly 4.3 per cent in 2011 before it slows down in 2012, a key Saudi bank has said.

The surge in crude prices by at last 50 per cent through 2011 will also expand the country’s nominal GDP by around 47 billion to its highest ever level while the current account and budget will record massive surpluses, Saudi American Bank Group (SAMBA) said in its monthly bulletin.

Strong oil prices and higher output by most regional states will also likely to accelerate growth in the other members of the Gulf Cooperation Council (GCC) while they will bask under larger financial surpluses.“

Large increases in oil, NGL and gas production will ensure a strong contribution from the UAE’s hydrocarbons sector in 2011,” it said.

“This will be bolstered by a healthy revival in Dubai’s trade and service economy to push real GDP growth to 4.3 per cent.”

But the report added that a downscaling of Abu Dhabi’s development spending plans, deteriorating global trade, growth and financial conditions, lower oil prices and a possible OPEC mandated cut in oil output, will all weigh heavily on the economy next year.

Citing its own figures and projections by the IMF and other institutions, the report showed the UAE, the second largest Arab economy after Saudi Arabia, would record a real GDP growth of around three per cent in 2012. But it still near the 3.2 per cent growth recorded in 2010 and in contrast with the 3.5 per cent contraction of real GDP in 2009.

“Abu Dhabi’s large oil revenues will continue to dominate the UAE’s federal finances, and while Dubai will continue to run fiscal deficits, the consolidated budget is projected to return to healthy surpluses in 2011-2012,” it said.

“This follows reported deficits in 2009-2010 when large amounts of public funds were used to bail out banks and GRE’s at a time of lower oil revenues. Fiscal consolidation and economy wide deleveraging are likely to remain themes next year. Dubai will need to maintain access to international markets, while Abu Dhabi seems intent strengthening its financial position and replenishing its large external assets.”

The report showed nominal GDP would grow by around $47 billion to a record high of nearly $350.7 billion in 2011, pushing up the country’s GDP per capita to $74,000 this year from $$65,300 in 2010.

Higher oil prices and output will also widen the current account surplus to 15 per cent this year from7.6 per cent of GDP in 2010.

SAMBA expected the UAE, which controls the world’s fifth largest oil resources, to pump around 2.48million bpd of crude in 2011 compared with nearly 2.3 million bpd in 2010.

Saudi Arabia

In Saudi Arabia, real GDP is projected to grow by 6.9 per cent this year before easing to around 3.8 per cent in 2012.as sharply higher oil production and large fiscal stimulus boosted activity this year, SAMBA said.

“Next year’s slowdown is largely explained by lower oil production, as Saudi Arabia makes way for returning Libyan output,” it said.

“Government spending will also be somewhat lower in 2012, but this reflects the huge stimulus of 2011, with spending up by an estimated 23 per cent.”

Qatar

Qatar, which has recorded the world’s highest growth rates over the past few years, would still see growth of as high as17.5 per cent this year because of large increases in hydrocarbons production and exports as the last LNG mega trains comes on stream and other gas-based production surges.

Fiscal policy remains expansionary in support of the government’s $226 billion National Development Strategy covering 2011-2016, and this is helping sustain healthy growth in the non-hydrocarbons sector, albeit sharply lower than the 20-30 percent rates in the boom period prior to the global crisis. “Following the completion of the bulk of the country’s hydrocarbon investment program, growth will slow to around 5.5 per cent in 2012 as hydrocarbons output stabilises at a high level, and growth is principally driven by developments in the non-hydrocarbons sector,” SAMBA said.

Kuwait

In Kuwait, the third largest GCC economy, real GDP growth was put at 4.5 per cent in 2011 and around three per cent in 2012.

SAMBA said lingering strains in the financial sector, mainly reflecting problems in investment companies in Kuwait, continue to hamper non-oil growth which remains muted.

“In addition, hopes have faded for the rapid implementation of the four-year development plan launched last year as political tensions have resurfaced, and capital spending has stalled,” it said.

“ As a result, it seems likely that growth in the non-oil sector will stall at around three per cent next year. With the contribution from the oil sector expected to decline as Kuwait restrains production, overall real GDP growth is likely to dip to three per cent.”

While growth prospects may be muted, Kuwait’s public finances remain exceptionally strong, even after recent large increases in subsidies, SAMBA said, adding that the oil windfall from higher prices and production should push the fiscal surplus to 23 per cent of GDP. Another 20 per cent surplus is projected for 2012 despite lower oil revenues. The current account surplus will remain similarly strong at between 30-35 per cent in both years.

Oman

Turning to Oman, the report forecast real growth at four per cent this year, below the 2010 rate of 4.8 per cent. It expected the rate to ease further to around 3.5 per cent in 2012.

“The unrest experienced earlier in the year has ceased, although lingering discontent over high unemployment rates and demands for political reform remain. The authorities have responded by increasing public sector jobs, raising salaries and pensions, and spending more on social sectors and infrastructure” the report said.

“Together with sustained growth in oil output and revenues, this is likely to have supported real GDP growth of four per cent in 2011. However, growth is projected to slip to 3.5 per cent in 2012 in the face of a poorer global outlook.”

Bahrain

Bahrain, the smallest economy in the region, could see a sharp fall in real GDP growth to 1.8 per cent this year from four per cent in 2010. SAMBA expected growth to mildly rebound to two per cent in 2012.

“Political and social unrest has damaged Bahrain’s reputation as a safe, stable, financial hub. While the widespread protests which erupted earlier in the year have been brought to an end, many issues remain unresolved and this is dampening investor confidence,” the report said.

“Bahrain’s finances are strained and vulnerable to oil price movements. Spending has been increased in response to political pressures, particularly for housing and subsidies and, although the surge in oil prices has provided some additional fiscal space, another deficit of around 6 percent of GDP is expected to 2011. This is likely to rise next year as oil prices weaken.”

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