Business | Economy
Gulf states to grow at slowest pace in six years as low oil prices bite
Most Gulf Arab economies will grow at their slowest pace in 2009 since the oil boom began six years ago as crude output cuts bite, a Reuters poll showed on Sunday.
- Reuters
- Published: 23:51 December 21, 2008
Dubai: Most Gulf Arab economies will grow at their slowest pace in 2009 since the oil boom began six years ago as crude output cuts bite, a Reuters poll showed on Sunday.
Real economic growth in Saudi Arabia, the United Arab Emirates and Kuwait is seen slowing below 3 per cent next year as the global recession and tight credit markets hurt activity in the region, the poll of 11 economists showed.
Economists have slashed most Gulf growth forecasts by more than half since they were last polled in July as the financial turmoil drove many major econ-omies, including the United States, Japan and Germany, into recession.
"What this has exposed is that the region has not decoupled from the headwinds that the world economy is facing," said John Sfakianakis, chief econ-omist at SABB bank in Riyadh, who took part in the December 7 to December 21 poll.
"The Gulf is more reliant on oil export revenues than what people have perceived and how they have portrayed themselves."
Since July, oil prices collapsed about three quarters from a record above $147 (Dh540) a barrel, sinking to under $34 a barrel last week, as the global downturn hit oil demand, forcing Opec to commit to slashing output by 4.2 million barrels a day.
For the world's biggest oil-exporting region, production cuts will have a severe impact on economic growth next year. The combined size of Gulf economies will slump from $1.05 trillion this year to $934.5 billion next year, the poll showed.
Real growth of 2.4 per cent in Saudi Arabia would be the slowest expansion for the world's top oil exporter since 2002, median forecasts for the poll showed.
The Saudi economy, set to expand 4.9 per cent this year, has grown about 30 per cent since 2002 - the onset of an oil price rally that enabled the region to pump windfall oil revenues into projects designed to reduce their reliance on volatile oil.
GDP growth in the UAE is seen decelerating to 2.7 per cent next year from 6.8 per cent in 2008, the slowest growth for the second-largest Arab economy since 2001, the poll showed.
The abrupt slowdown in the UAE would be amplified by a series of job cuts in Dubai, which is suffering from a property market correction that has battered demand in the services, retail and tourism sectors.
"The extent of the slowdown in economic activity in the non-oil sector across the Gulf will be a key element to monitor," said Giyas Gokkent, chief econ-omist at National Bank of Abu Dhabi.
Investment spending by private firms and net exports would likely experience a slowdown as well next year but still contribute positively to GDP, Gokkent added.
Private equity flight
While Gulf states seem poised to keep expanding their budgets to weather the global recession, the private sector is already pulling out of investments due to funding constraints.
Rio Tinto said last week it would be unable to fin-ance its 49 per cent stake in a Saudi aluminium joint venture.
The silver lining on the pessimistic regional growth outlook is that inflation, cited as the big cloud hanging over the region's growth, is receding, economists said.
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