Business | Economy
Gulf's growth outlook 'fundamentally sound'
Though the Gulf states are looking more fundamentally sound than most emerging markets at the moment, there are risks that could derail the momentum, according to Business Monitor International, a leading London-based business research consultancy.
- By Gaurav Ghose, Financial Features Editor
- Published: 23:21 August 18, 2008
Dubai: Though the Gulf states are looking more fundamentally sound than most emerging markets at the moment, there are risks that could derail the momentum, according to Business Monitor International, a leading London-based business research consultancy.
Thanks to strong liquidity and robust growth, the short-term growth outlook for the Gulf Cooperation Council (GCC) region is excellent. BMI has a projection of 5.6 per cent in 2008. Growth will be primarily driven by oil-based liquidity, with the region's nominal GDP expected to be $1.415 trillion in 2008 and going up to $1.542 trillion next year.
Exports will perform strongly too, according to the BMI's report Oil and the GCC: Four Key Risks, and are expected to touch $704 billion this year, rising to $742 billion in 2009.
The report, however, points to four risks - inflation, infrastructure shortage, real-estate related problems and impact of either high or low oil prices.
"Perhaps the single greatest threat to the macroeconomic outlook in the Gulf is inflation," the report says. "No state is immune to it."
The consultancy thinks that the government will continue to throw money at the inflation problem, but "in many ways this is a dangerous game."
"Raising salaries and increasing subsidies prevents the market from returning to equilibrium... government handouts and extensive monetary easing keep demand high and potentially exacerbate the problem. There are also supply side pressures of course: global food shortages, as well as housing shortfall have both fed into inflation."
Energy woes
Citing Dubai Electricity and Water Authority estimates, Elizabeth Martin, a Middle East analyst with BMI and one of the authors of the report, writes in Financial Review, "The emirate [Dubai] only has enough natural gas to meet demand for electricity to the end of 2008: thereafter it will have to begin importing or searching for alternative energy sources."
On real estate, the BMI said: "While property markets are booming across the GCC, we believe that the area in which speculation is the greatest driver is the UAE [and specifically Dubai, followed closely by Abu Dhabi]. We therefore see it as the most at risk from a correction, particularly as supply catches up with demand in 2008-09."
- Also read the article 'Pitfalls of rapid growth' in GN Quarterly Financial Review, 3, to be out on Wednesday, and on www.gulfnews.com
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