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Gulf oil producers will likely remain basking in fiscal euphoria through 2012 for the second consecutive year because of strong crude prices and high regional production, according to a Kuwait investment bank.
Although their economies will slow down this year due to slightly lower crude prices and the global financial upheaval, the real GDP in the six-nation Gulf Cooperation Council (GCC) will remain positive and relatively high in some members, Global Investment House (GIH) said in a study.
The report estimated the six GCC members recorded a budget surplus of around $183 billion in 2011-2012 fiscal year while the surplus could edge down to nearly $179 billion in 2012-2013 due to a surge in spending.
It said Saudi Arabia, the largest Arab economy, is expected to account for nearly 45 per cent of the 2012-2013 GCC surplus, with around $80 billion.
The report projected the surplus at just under $60 billion in Kuwait, $20 billion in Qatar, $18 billion in the UAE and just over $one billion in Oman. Bahrain will be an exception as it is expected to suffer from a shortfall.
“In Bahrain, political conditions have improved since the turmoil in the first quarter of 2011. The country’s financial sector which accounts for 25 per cent of GDP was hit hard and saw various banking and investment giants pulling their operations out of the country,” GIH said.
“We anticipate Bahrain’s nominal GDP to grow by 3.5 per cent in 2012 and expect it to report a budget deficit as the country will face tough competition from its more-stable neighbours for financial services and tourism business.”
According to the report, Saudi Arabia needs a breakeven oil price of $84.5 to balance its budget in 2012 while the breakeven prices for UAE is $80. GIH estimated that price at $67.6 for Kuwait, $46 for Qatar, $75 for Oman and as high as $107.5 for Bahrain given its high spending and low oil output.
“Despite the economic turmoil and slowdown worldwide, GCC region continued to fare better than other regional economies with an estimated nominal and real GDP growth of 24.3 and 6.9 per cent in 2011, respectively,” GIH said in its economic section in the 132-page report.
“High oil price and increased production ensured continued healthy revenues in the GCC countries. Apart from higher oil prices, the growth was ensued by robust incremental government spending worth over $100bn in 2011.”
It said GDP growth in 2012 is expected to be lower than in 2011 in both real and nominal cases. “A weaker global outlook will result in a more tough economic environment for the GCC and will present considerable downside risks to oil prices which are the core factor for nominal GDP growth.”
A breakdown showed real GDP would grow by around 3.8 per cent in 2012 compared with 3.3 per cent in 2011 in the UAE, 3.6 per cent against 6.8 per cent in Saudi Arabia and 4.5 per cent against 5.7 per cent in Kuwait.
Citing projections by the IMF and other sources, the report put growth in Oman at 3.6 per cent this year compared with 4.4 per cent in 2011 and in Bahrain at 3.6 per cent against 1.5 per cent in the same period.
Qatar, the world’s top LNG supplier, will see its GDP growth tumble to nearly six per cent this year from as high as 18.7 per cent in 2011 and 16.6 per cent in 2010, according to the report.
The IMF and other reports have expected Qatar’s economy to revert to normal growth rates after a sharp rise over the past years following the recent completion of mega LNG projects that allowed the tiny Gulf nation to pump as much as 77 million tonnes of liquefied natural gas (LNG) per year.
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