The economies of hydrocarbon producers in the Gulf and other regional countries are expected to have grown by around 5.5 per cent in 2012 but growth could decline in 2013 due to lower oil output in the UAE and other Gulf crude exporters.
High growth in 2012 was a result of an increase in oil output by most producers in the Middle East and North Africa (MENA) with the exception of sanctions-hit Iran, the Washington-based Institute for International Finance (IIF) said in a study.
IIF also attributed growth to a strong rebound in Libya’s oil supplies, which were severely disrupted during the 2011 conflict that toppled Muammar Gaddafi.
“Overall growth is projected to moderate to 3.9 per cent in 2013, as crude oil production will be restrained in Saudi Arabia, Kuwait, and the UAE,” it said.
As for finances, it said expansionary fiscal and monetary policies adopted by many regional states are expected to remain in place in light of the continued substantial hydrocarbon revenues, the peg to the dollar, and the rebound in private credit.
Firm oil prices will keep the external current account and fiscal positions in large surpluses, the report said, adding that the surplus in the Gulf Cooperation Council (GCC) as well as Iraq, Iran, Algeria and Libya could narrow from 7.5 per cent of GDP in 2012 to around 5.2 per cent in 2013 on the basis of an oil price of $110 this year.
The aggregated current account surplus will slip from $412 billion in 2012 to $384 billion in 2013 (of which $338 billion will accrue to the GCC countries), it said.
The report showed the combined current account surplus of Saudi Arabia and the UAE alone (projected at $207 billion in 2013) will remain larger than that of China.
“The diversified nature of investments and the projected large current account surpluses should result in a further large rise in the stock of gross foreign assets to about $three trillion by end-2013, against foreign liabilities of $0.5 trillion,” it said.
It showed that about 40 per cent of the foreign assets of the region’s oil exporters is managed by sovereign wealth funds (SWFs) with diversified portfolios of public equities, fixed income securities, real estate, and minority shares in big-name global companies.
“The region’s large net foreign assets and high oil prices will help sustain robust government spending levels over the medium term,” IIF said.
According to the report, the average growth of oil exporters masks “wide variations” in prospects for individual countries.
Saudi Arabia, the largest Arab economy, is expected to register strong overall growth of 5.8 per cent this year, while n the UAE, real GDP is expected to have expanded by 4.1 per cent in 2012 and 3.5 per cent in 2013, the report said.
Iran’s economy is expected to have contracted by 3.5 per cent in 2012 due to the Western economic sanctions, it noted.
The relatively modest non-hydrocarbon growth of around 3.5 per cent in Kuwait is due to political discord, it said, adding that the government was dissolved three times within less than three years until the recent elections, which has adversely impacted policymaking and agreement on government priorities.
“Higher levels of growth require a political consensus on much-needed reforms, and a shift in government spending to support increases in non-hydrocarbon productive capacity in the private sector,” IIF said.
In Qatar, the moratorium on new liquefied natural gas (LNG) production capacity until 2015 is expected go slow overall growth sharply to 6.5 per cent in 2012 and 4.9 per cent in 2013. But the continued large increases in public spending on infrastructure and wages will maintain non-hydrocarbon growth of around eight per cent, IIF said.
“The main downside risk for the oil countries stems from the possibility of much lower oil prices for a sustained period of time, which is likely if the global economy moves to and stays on a lower growth path,” the report said.
“Public spending in the MENA oil exporters has risen to such a level that a sharp fall in oil prices would undermine fiscal positions and lead to some cancelation or postponement of ongoing infrastructure investment, thereby lowering GDP growth. However, short-lived (a few years) lower oil prices are less of an issue for the region’s oil exporters given the large financial buffers that could be used to maintain current government spending trends.”
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