Gulf 2011 growth outlook improves slightly

Prospects for growth in Gulf Arab economies in 2011 have improved slightly from forecasts three months ago, a Reuters poll showed on Tuesday, as rising oil prices and generous government spending underpin economic recovery.

The global downturn cut output and froze credit in the world's top oil exporting region in 2009, limiting growth in the six Gulf countries this year.

But rising crude prices and a pick-up in credit growth will support growth in 2011, according to the median forecasts of 16 economists polled between Dec. 8-21.

Saudi Arabia, the largest Arab economy and the world's top oil exporter, is expected to see economic growth of 4.3 percent in 2011, up from a forecast 4.2 percent in a Reuters poll in September. Growth would be higher than a forecast 3.8 percent this year and a sluggish 0.6 percent in 2009.

Saudi Arabia on Monday announced an expansionary 2011 budget, with plans to spend 580 billion riyals ($155 billion) next year, mainly on education and infrastructure projects.

"The 2011 budget demonstrates that the kingdom is dedicated to continuing stimulatory spending to develop the economy and persuade private investors to do the same as they gradually emerge from a phase of deleveraging," John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said.

"A slowdown in the pace of budget growth, however, also signals the state's goal to rein in overspending and employ more prudent and efficient fiscal policies in the coming years."

Saudi Arabia is expected to post a positive fiscal balance of 4.1 percent of gross domestic product (GDP) in 2011 compared to 2.7 percent in 2010, the poll showed.

Oil prices, which have recovered since December 2008 lows, will keep Gulf fiscal balances and current accounts in surplus in 2011, the analysts said.

A Reuters poll forecast oil prices will average over $86 a barrel next year on declining inventories and demand growth from Asia. Crude oil was priced at $89.63 a barrel at 0920 GMT on Tuesday.

Qatar, the world's top liquefied natural gas exporter, should easily outperform the region, with real GDP growth of 12.8 percent in 2011, unchanged from a September forecast, although it will not match expected growth of 16 percent this year.

The economy of OPEC member Kuwait is forecast to grow 4.0 percent in 2011, up from a forecast of 3.9 percent in the September poll and up from 3.0 percent growth expected in 2010. Bahrain and non-OPEC member Oman should see GDP growth of 4.2 and 4.6 percent in 2011, respectively, topping forecasts of 4.1 percent and 4.3 percent, respectively, in the September poll.

Giyas Gokkent, chief economist at National Bank of Abu Dhabi, said key risks in 2011 were external shocks affecting the oil price, the outcome of ongoing debt restructuring talks in the UAE, and geopolitical tensions with Iran.

"The whole scenario revolves around where oil prices will be. If global growth is indeed robust, that is very positive and oil prices will remain firm," he said.

The UAE -- the second-largest economy in the Arab world -- is seen growing 3.6 percent in 2011, the slowest pace in the Gulf, but slightly better than 3.5 percent growth forecast in the September poll.

INFLATION LOWER IN 2011

Analysts said inflation would rise in 2011 in all the Gulf states except Saudi Arabia, although they cut inflation forecasts for all Gulf Arab countries compared with September's poll.

Saudi Arabia should still see the highest inflation rate at 5 percent in 2011 due to rapid population growth, higher housing costs and rising global food prices. But that is still below the record peaks seen in most Gulf countries in 2008.

Consumer prices in Qatar, which has experienced deflationary pressures, are expected to rise 3 percent next year versus 2 percent deflation in 2010.

"Qatar saw deflation in 2010, but will have a rebound in prices next year because of developments in the housing sector," Gokkent said, adding that a substantial amount of housing had already come to the market, weighing down the consumer price index.

"In 2011, the impact of falling rents will not be of similar magnitude."

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