GCC growth to slow down in 2012

The economies of Gulf hydrocarbon producers are projected to race by nearly seven per cent in 2011 but growth could tumble to nearly half that rate because of an expected decline in crude prices and the region’s production, according to key Saudi bank.

Average oil prices could dip to nearly $100 a barrel in 2012 from a record high of around $110 in 2011 while crude output by the six-nation Gulf Cooperation Council (GCC) is expected to shrink to around 15.68 million barrels per day from about 15.91 million bpd in the same period, the Saudi American Bank Group (Samba) said in a study.

“The weaker global outlook will provide a more challenging economic environment for the GCC and presents considerable downside risks to oil prices. In addition, while GCC trade is increasingly orientated towards emerging markets and particularly Asia, lower growth in the developed economies will generate headwinds through weaker trade and tourism activity with the GCC, and will also dent growth prospects in these emerging markets,” the study said.

“Capital flows to the GCC may also suffer and valuations and earnings on GCC external assets decline. That said, the structural strengths of GCC economies are expected to allow states to weather the storm and sustain growth, even if this means shrinking fiscal surpluses or even deficits.”

Its forecasts showed the GCC’s combined real GDP would soar by around seven per cent in 2011 but growth is projected to tumble to 3.7 per cent in 2012. The 2011 growth is the highest rate since 2008, when regional economies raced by 7.1 per cent due to high oil prices and supplies.

After an expected gain of a staggering $277bn this year, the GCC nominal GDP could still swell in 2012 but at a lower rate, expanding by around $29bn, the study said.

“The uncertain global outlook suggests that the current strength in oil prices (Brent will average around $110/b this year) will not be sustained into 2012. However, oil markets are expected to continue to receive support from emerging markets where oil demand growth is projected to be sufficiently robust to offset declines in OECD demand,” SAMBA said.

On the supply side, markets will be closely watching progress in restoring Libya’s 1.6 mb/d output, the loss of which has tightened physical markets, especially in Europe, it said, adding that uncertainty also surrounds non-OPEC supply after its unexpectedly weak performance this year.

It said a geopolitical risk premium is also expected to prevail as political strains in the broader Mena region remain unresolved, and tensions elevated over Iran’s nuclear ambitions.

“Perhaps most importantly Saudi Arabia, with or without OPEC, is expected to act to provide support to prices if necessary. The kingdom is already looking to balance its output against increasing Libyan supply, while monitoring prices carefully,” the report said.

“In addition, tensions within OPEC are likely to be put aside as a consensus emerges over the need to support prices at around $100/b given members’ higher budget break-even prices. It is thus possible that OPEC could agree production cuts t its June meeting in 2012 should prices and market fundamentals weaken sharply. In this context, we project that average Brent prices will hold at around $100 in 1012 although there my be large movements during the year as markets respond to evolving economic and political developments.”

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