This year will be one of contraction for the region, as oil revenues, capital investments and current account surpluses in the GCC region are expected to witness a sharp deceleration, which will have a significant impact on the real economic growth of these countries.
However, the strong macro-economic factors of the GCC and government-backed projects will continue to progress this year, mitigating the problems, says a new report by Global Investment House (GIH).
The combined size of the GCC economies is expected to fall to about $923.6 billion (Dh3.39 trillion) after having risen from $822.2bn in 2007 to about $1.04trn in 2008, according to the report.
As per the estimates of GIH, the real growth of the region was estimated to be about 5.2 per cent in 2008, while in 2009 the growth rate is expected to decline to about 2.4 per cent.
After witnessing a super-spike period during mid-2008 that reached a record high of more than $140 per barrel, oil prices fell sharply towards the end of the year to trade at less than $35 per barrel, impacting the GCC economies in a big way.
"Oil prices averaged about $94 per barrel for 2008 and it is forecast that average prices are likely to remain in the range of $60 per barrel for the year 2009. Sharp economic downturns in advanced economies have started spreading their effects to Asian economies, which were previously considered recession-proof. On the back of this, world oil demand is also likely to fall in 2009," says the report. "Such a sharp fall in oil prices along with production cuts by Opec will also have a significant impact on economic growth. The cumulative cut imposed by Opec in 2008 was 4.2 million barrels a day. At the same time, further cuts are not ruled out if oil prices sink further in 2009."
GIH estimates that among the GCC countries, Saudi Arabia will be the most affected in real terms with its growth rate expected to decline to 1.4 per cent. Qatar will be less impacted compared to its GCC peers with its real growth expected to decline from 10.4 per cent in 2008 to 9.4 per cent in 2009.
For the UAE, real growth rate is expected to reach 5.5 per cent in 2008 and the growth rate is likely to shrink to two per cent in 2009.
The Standard Chartered bank expects to see a considerable dip in growth rate in the country this year. "We forecast that growth in 2009 will fall to 0.5 per cent," Mary Nicola, Economist at Standard Chartered, told Emirates Business.
Coming to other countries in the bloc, real GDP growth of Kuwait, Oman and Bahrain is set to reach five per cent, 6.4 per cent and six per cent, respectively, in 2008 while in 2009, the real growth of these countries is expected to decelerate to 2.5 per cent, 3.5 per cent and three per cent, respectively.
GIH is also not very optimistic about the prospects for private sector projects this year. "But in the long term things should be bright because the GCC is built on strong macro-economic factors that will rehabilitate any project problems. Moreover, government-backed projects will continue to progress."