A sharp decline in crude prices and output will ally with a global credit crunch to depress the economies of Gulf oil producers in nominal terms but they will record positive real growth, an international analyst said yesterday.
George Abed, Senior Adviser to the managing director of the Institute of International Finance (IIF), said the combined gross domestic product of the six-nation Gulf Co-operation Council (GCC) would sharply slow down in 2009 but would still record positive growth of around 2.5 per cent.
In an interview with Emirates Business, Abed said the GCC's massive financial resources, high public spending and better investment climate would partly offset a steep decline in the hydrocarbon sector in 2009.
"Average real GDP growth in the region will slow to 2.5 per cent in 2009 from an estimate of 5.7 percent in 2008 due to reduced oil production, tighter credit conditions, and substantially lower oil prices," said Abed, who is also Director of the Africa and Middle East Department at the Washington-based IIF.
"Hydrocarbon real GDP for the region as a whole is expected to contract by about three per cent in 2009 as compared to a growth of 4.2 per cent in 2008."
His figures showed the overall GDP growth is projected at around 1.2 per cent in Saudi Arabia, 2.3 per cent in the UAE, 1.2 per cent in Kuwait, about nine per cent in Qatar, and nearly five per cent in Oman and Bahrain.
But he expected the GCC's hydrocarbon sector to contract in 2009 after a sharp increase in 2008 as a result of the decline in prices and a decision by most GCC members to cut crude output in line with a collective decision by the 12-nation Opec to trim production to prop up sagging crude prices.
He said Saudi Arabia would record the largest decline given its relatively large production cuts because of its high output, accounting for nearly a third of Opec's supplies. In contrast, Qatar's hydrocarbon sector is expected to grow, given a steady increase in its LNG exports.
"Following the recent announcements of cuts in production of oil, hydrocarbon real GDP growth in 2009 is expected to contract by 4.5 per cent in Saudi Arabia, 4.3 per cent in the UAE, and four per cent in Kuwait," Abed said.
"In contrast, hydrocarbon real GDP is expected to grow by at least 12 per cent in Qatar in 2009 due to the significant increase in its gas production, which will more than offset the reduction in oil production."
According to Abed, the non-oil real GDP in the GCC will slow down in 2009 but is projected to remain relatively solid at around four per cent compared to six per cent in 2008.
"The favourable impact of structural reforms of the past few years, including improved business environment, combined with the steady increase in real government spending in all the GCC countries and their massive financial resources should support economic activity helping to offset weaker private investment as a consequence of tighter credit conditions," he said.
Citing IIF projections, Abed put non-hydrocarbon real growth at 3.6 per cent in Kuwait, four per cent in Saudi Arabia, 4.2 per cent in the UAE, and five per cent in Qatar, Oman and Bahrain. His figures for 2008 showed the GCC's nominal GDP leaped by nearly 30 per cent to smash through the $1-trillion mark for the first time mainly because of higher crude output, a sharp rise in oil prices and increased investments.
"It is estimated to have increased by about 30 per cent to $1.06trn, as compared to $821bn in 2007. This sharp increase is partly the result of higher oil prices, which is estimated to have averaged $95 per barrel in 2008 as compared to $72 in 2007," Abed said. He said hydrocarbon nominal GDP soared from $409bn in 2007 to around $583bn in 2008. In 2009, however, hydrocarbon nominal GDP is expected to decline to $344bn assuming an average oil price of $55 per barrel. Non-hydrocarbon nominal GDP, however, will continue rising to $544bn in 2009 as compared to $482bn in 2008."
Abed said lower inflation rates would accompany the economic slowdown in the GCC after a steady increase in the past three years mainly due to the economic boom, weak US dollar and a surge in global prices.
He said a slowdown in credit growth from the earlier excessive pace, and some further decline in commodity prices should lower the average inflation rate from a peak of 12 per cent in 2008 to 7.5 per cent in 2009.
Assuming an average price of oil of $55 per barrel for 2009 and taking into account the planned reduction in oil production, Abed said this would sharply depress the GCC's current account surplus after peaking in 2008. "The combined external current account surplus of the GCC could narrow to less than $20bn in 2009 from an estimate of $310bn in 2008. The fiscal surplus is to narrow substantially from 21 per cent of GDP in 2008 to only three per cent of GDP in 2009."
In Saudi Arabia, a prominent economist agreed that the GCC economies would still record positive growth in real terms this year despite downward pressure from the oil sector because of lower crude prices and production.
Saeed Al Shaikh, head of the economy and research section at the Saudi National Commercial Bank, said the decline in the Gulf hydrocarbon sector in 2009 would be big enough to depress the nominal GDP after racing by at least 15 per cent over the past five years due to high prices and output.