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28 May 2024

Oil slump to depress Gulf GDPs by more than $80bn in 2009

Oil exports helped GCC GDPs soar to $182bn in 2008 (GETTY IMAGES)

By Nadim Kawach

A sharp decline in crude prices and production is expected to depress the economies of Gulf oil producers by more than $80 billion (Dh293bn) in 2009, while a steep fall in income could delay projects, according to a key Gulf investment bank.

Given their strong reliance on oil exports, the gross domestic product (GDP) of the six Gulf Co-operation Council (GCC) nations leaped by nearly $182bn in 2008 when crude prices soared to their highest ever nominal level.

But the recent price crash will ally with a decision by Gulf states and other Opec producers to trim output to reverse their GDP growth and sharply depress their income, and surpluses in current account and budgets, the Kuwait-based Global Investment House (GIH) said in a study. "Lower oil prices and reduced oil production, coupled with a falling demand for goods and services will translate into a crash in the region's export income, trade surplus and overall current account surplus… this narrow fiscal as well as trade surplus will definitely have some impact on the liquidity position of these countries," said the study, sent to Emirates Business yesterday.

"On the back of this, some of the fresh investment projects are not likely to get materialised. At the same time projects which are there in the pipeline could also get delayed. However, accumulated surpluses over the last several years will provide a cushion to public spending of GCC economies. Therefore, liquidity management could be the key to fund future projects."

Its estimates showed the combined GDP of the six countries, which control nearly 45 per cent of the extractable oil deposits, surged from $822bn in 2007 to $1.04trn in 2008. But it forecast the GDP would decline to around $923.6bn in 2009, a drop of around $81bn.

In nominal terms, the combined GDP jumped by around 26.4 per cent in 2008, while it is expected to contract by nearly 11.1 per cent this year, GIH said.

Real growth is estimated to reach about 5.2 per cent in 2008 while in 2009 the growth rate is likely to decline to around2.4 per cent, it said.

A breakdown showed the region's largest economy, Saudi Arabia, is likely to report a nominal growth of 22.5 per cent and a real growth of 4.2 per cent in 2008. But in 2009 the Kingdom's economy could decelerate by about 12.2 per cent in nominal terms and grow by only 1.4 per cent in real terms.

Qatar, the third largest gas power in the world, is expected to suffer in nominal terms because of lower oil prices but its real economy is projected to decline slightly given the steady and rapid growth in its LNG exports.

According to GIH, Qatar's nominal GDP grew by around 33.8 per cent in 2008, while in 2009 the growth rate is likely to turn negative to about 0.8 per cent. Real growth is estimated at 10.4 per cent in 2008 and 9.4 per cent in 2009.

"Among the GCC countries, Saudi Arabia will be the most affected in real terms in 2009… Qatar will be less impacted, as compared to its GCC peers, with its real growth expected to fall slightly from 10.4 o 9.4 per cent."

As for the UAE, real growth is likely to reach 5.5 per cent in 2008 and is expected to shrink to two per cent in 2009, the study said.

The real GDP growth of Kuwait, Oman and Bahrain is set to reach five, 6.4 and six per cent respectively in 2008 while in 2009, their real growth is likely to decelerate to 2.5, 3.5 and three per cent respectively.

Besides high growth in 2008, strong crude prices also sharply widened the GCC's internal and external fiscal surpluses. GIH said it expected the combined fiscal surplus of the six members, which pump a fifth of the world's crude supplies, to have hit a record $305bn in 2008, accounting for nearly 29.4 per cent of their GDP.

"However, in 2009, declining oil prices are likely to have a significant impact on revenues of GCC countries, while the same time government expenditure should remain expansionary for further growth," it said.