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21 April 2024

Gulf economy poised for sharp slowdown in 2009

By Nadim Kawach

The global financial crisis has brought an end to a prolonged oil boom in the Gulf and reversed years of strong economic performance and massive fiscal surpluses, experts said yesterday.

While the economies of the GCC countries are not expected to shrink in 2009, they will slow down sharply in real terms and their budgets and current accounts could record minimal surpluses or even deficits.

"The economic and oil boom experienced by the GCC countries between 2002 and 2008 is over," said Henry Azzam, CEO of Dubai-based Deutsche Bank for the Middle East and North Africa.

"This year will see a sharp slowdown in their economies as a result of a large decline in crude prices and their oil output, and the adverse effects of the global economic crisis and liquidity shortages on their non-oil sectors," Azzam wrote in the London-based Saudi Arabic language daily Al Hayat.

"If there is any bright aspect of the pessimistic prospects about the Gulf economies it is the expected decline in inflation rates in member states as this problem was their main concern during 2008."

Despite their varied scenarios about the GCC economies in 2009, Azzam and other experts agreed there would be a sharp slowdown in real GDP growth mainly because of lower oil export earnings, an expected large fall in crude output in line with an Opec agreement and a persistent global credit crunch.

Azzam's figures showed real GDP growth would slacken to only around 1.5 per cent this year from 6.8 per cent in the UAE, the second largest Arab economy.

Saudi Arabia, which has the largest Arab GDP, could be hit harder as its economy could grow by less than one per cent.

Kuwait could also experience growth of below one per cent while the economies of Bahrain and Oman could still grow by 2.5 and 3.5 per cent respectively.

Qatar, which controls the world's third largest gas reserves, could be the odd one out as its GDP is projected to rise by nearly eight per cent. But this would remain far lower than the real GDP growth rates recorded in the previous two years of more than 12 per cent, according to Azzam.

Experts attributed the relatively high growth in Qatar to the rapid rise in its LNG exports, which have ensured the tiny Gulf nation a stable income given the relatively fixed prices of LNG in contrast with the volatile crude oil price.