Dubai: Saudi Arabia, Qatar and the UAE will lead the huge oil windfall the region has been experiencing over the past year and these economies are likely to see a strong revival in gross domestic product (GDP) growth this year, according to economists and analysts.

"In absolute terms, Saudi Arabia stands out, with dollar GDP likely to reach $650 billion in 2012, an increase of more than $250 billion since 2009. Qatar's remains the most striking dynamic, however, with gains in oil earnings coupled with a sharp rise in gas production suggesting that nominal GDP should have doubled between 2009 and 2012," said Simon Williams, chief economist, Middle East and North Africa of HSBC.

Bank of America Merrill Lynch has raised the Gulf Cooperation Council's (GCC) GDP growth forecast from 3.4 per cent to 4.3 per cent in 2012. The revision is largely led by stronger macro projections for Saudi Arabia. The underlying drivers in general are the significantly improved outlook for the global economy and higher oil prices.

"We now expect Saudi Arabia to grow at a brisk 5 per cent pace in 2012, from 3.3 per cent previously, on a robust non-oil economy, higher oil windfall and elevated levels of crude oil production on reduced Iranian oil supplies," said Turker Hamzaoglu, an economist with BoA Merril Lynch.

Analysts say the surge in oil revenues is expected to strengthen the public finances of most Gulf states. "We expect the GCC states to run an aggregate budget surplus of around 12 per cent of GDP in 2012, allowing the region's governments to continue to reduce what are already modest levels of public debt. In both Saudi Arabia and Oman, for example, debt stocks of under 10 per cent of GDP will continue to trend downward as surpluses accrue," said Elizabeth Martins, an economist with HSBC.

The windfall is expected to further enhance the regional oil producers' robust external account position. HSBC economists expect every GCC state to record a current account surplus this year, with the overall aggregate balance equating to just under 25 per cent of GDP. This should leave the regional oil producers with more than $400 billion to add to their foreign asset stock in 2012 alone.

Record oil earnings have had a profound impact on the economic fundamentals of most Gulf countries. "Economic growth has picked up in all countries except Kuwait, Bahrain and Oman. These are countries which experienced considerable political upheaval in 2011, and it is therefore unsurprising to us that growth there suffered as a result," said Farouk Soussa, Citibank's chief economist for the Middle East.

Analysts said although the Gulf oil exporting countries have significantly improved, given the government fin-ances both in terms of flows (budget balance) and stocks (fiscal/foreign exchange reserves), the GDP growth in these countries is unlikely to see a proportional surge.

HSBC economists believe the increase in oil output will lift industrial production, but the capital intensive nature of oil production and its reliance on imports means that the spillover from gains in oil production into the rest of the domestic economy is limited.

The impact of oil surpluses is felt on the domestic economy, when these earnings actually enter the economy and boost consumption and investment demand.

The regional governments have been spending high in recent months. "We strongly expect public spending to show further overall gains in 2012 and 2013 and be a prime driver of economic growth in the GCC states," said Williams.

PMI indicates expansion

Dubai: The UAE's purchasing managers' index (PMI), a composite indicator of the performance of the non-oil private sector, remained steady in March, indicating sustained economic recovery.

The index, compiled by HSBC Holdings Plc and Markit Economics, was 52 in March.

"Although the score continues to suggest that the economy is expanding, there is little in the data to indicate that the UAE is gaining momentum. Output picked up a little in March, but new orders lost speed, held back by decelerating export orders," said Simon Williams chief economist, Middle East and North Africa of HSBC.

Falling stock levels and declining growth in the quantity of purchased input suggest the producers do not anticipate a near term pick-up in demand.

Overall output prices also showed no growth month on month but input costs continued to rise, suggesting ongoing pressure on margins in an environment where demand is too weak to offer producers significant pricing power.

Although there was some pick-up in labour demand in March, the increase was modest and wages remained stagnant.