Business | Economy
Gulf growth still on track
Strong structural reforms undertaken by the Gulf governments since 2001, huge economic diversification and liberalisation under way in some countries like the UAE combined with huge fiscal reserves are likely to minimise the impact of global economic slowdown on Gulf economies.
- By Babu Das Augustine, Banking Editor
- Published: 23:41 November 15, 2008
- Image Credit:
Dubai: Strong structural reforms undertaken by the Gulf governments since 2001, huge economic diversification and liberalisation under way in some countries like the UAE combined with huge fiscal reserves are likely to minimise the impact of global economic slowdown on Gulf economies.
"A cyclical slowdown is already underway in the region. However, compared to the last oil price shock, the GCC [Gulf Co-operation Council] countries have implemented numerous structural reforms and accumulated huge petrodollar reserve funds," said Yvan Mamalet, an economist with Societe Generale Asset Management.
"We believe that a repeat of the early 1980s sharp economic downturn will be avoided [in the Gulf] - unless the global recession proves much deeper and longer than we expect and oil prices fall significantly further," said Mamalet.
The Gulf countries benefited from this decade's huge spike in oil prices. GCC governments had foreign assets of $1.8 trillion (Dh6.62 trillion) at the end of last year and the tally is expected to top $2 trillion by the end of 2008, according to recent estimates by the Institute of International Finance (IIF).
Analysts and rating agencies say GCC banks remain in good shape, with notably very low leverage ratios.
In addition to diversification in tourism and finance, petrochemical industries have also developed. While the public sector continues to play a strong role in most Gulf economies, most of these countries have been opening up to foreign direct investment.
Budget calculation
Kuwait's Global Investment House said in a recent report GCC states have calculated oil price in their budget at less than $50 a barrel. "Despite the sharp drop in oil prices, GCC states will end this year with a good surplus. Despite the global slowdown the report said the region will continue to invest in transport, utilities and education."
The GCC economies are headed into a cyclical slowdown due to lower oil prices, the G7 recession and the liquidity squeeze. However, at current levels, the oil price remains close to its 2006 average when the fiscal balance was at 22 per cent of GDP.
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