GCC growth put at 7% in 2011

The economies of Gulf oil exporters could race by nearly seven per cent this year as a result of political unrest in the Middle East, high oil prices and an increase in public spending, a Kuwait bank has said.

National Bank of Kuwait (NBK) said had revised up its forecasts for real GDP growth for the six-nation Gulf Cooperation Council (CCC) from 5.5 per cent to seven per cent mainly because higher crude prices and output due to the political upheavals sweeping the region.

Its projection is higher than those by the Washington-based Institute for International Finance (IIF), which put GCC growth at 6.5 per cent in 2011.

“The political unrest spreading through the MENA region in early 2011 has, ironically, boosted the GCC’s short-term growth outlook, in our view. Real GDP growth is now seen at seven per cent, up from the 5.5 per cent expected before,” NBK said in a study released this week.

“While growth in the region’s two smallest economies - Bahrain and Oman - has been revised down on protest-related disruption to trade, tourism and investment, activity in other GCC countries is likely to be stronger thanks to a combination of rising oil output and higher government spending. The medium-term implications of the unrest, however, are less clear.”

It noted that the GCC’s oil production has risen sharply in recent months mainly to compensate for a sharp drop in output in war-ravaged Libya.

Although the 12-nation OPEC remains doubtful of the need to raise output any further, strong economic growth in emerging markets and the threat of a destabilizing price spike could cause it to soften its position, the study said.

“If so, the bulk of any output increases are likely to come from Gulf countries, which may hold more than 80 per cent of OPEC’s spare production capacity. We assume that the oil market will remain tight and that oil prices average $110 per barrel both this year and next.”

NBK estimated that the recently-announced government spending measures aimed mostly at boosting GCC nationals’ living standards could be worth more than $60 billion this year (five per cent of GDP), largely from Saudi Arabia.

It said the extra expenditure could push the total increase in government spending this year to 22 per cent – a massive contrast to the budget cuts taking place in other parts of the world.

“Not all of this extra spending will translate into stronger domestic demand, but it will help maintain growth at a decent pace while activity in the private sector – including sluggish borrowing - gains momentum,” it said.

“Although rising government spending, high food prices and the improving economic environment have heightened inflationary concerns, the short term outlook is reasonably encouraging.”

In another study, IIF expected real GDP growth in the GCC at around 6.5 per cent in 2011, higher than the 5.1 per cent recorded in 2010.

Its breakdown showed growth this year will be as high as 18.1 per cent in gas-rich Qatar, 5.3 per cent in Saudi Arabia, 4.6 per cent in Oman, 4.4 per cent in Kuwait, 3.8 per cent in the UAE and 2.9 per cent in Bahrain.

“In the group of Arab oil exporters, Iraq and Qatar are projected to record double-digit growth, underpinned by large increases in crude oil and LNG production, respectively,” IIF said in its Arab world report.

“For GCC countries, average growth is projected to rise from 5.1 per cent in 2010 to about 6.5 per cent in 2011, buoyed by higher oil production and large increases in government spending.”

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