Dubai: Investment projects are going to be the main economic driver of domestic demand for the region's economy that would accelerate Gulf Cooperation Council (GCC) states' non-oil GDP growth for this year and next, according to chief economist of EFG-Hermes investment bank.
Writing in the just published GN Quarterly Financial Review, Dubai-based Monica Malik, says, "We believe that key drivers for the Mena region — oil, tourism and remittances — will still remain at a supportive level and help sustain private consumption."
However, she adds the investment bank is taking a conservative stance on oil production. It has reduced its forecast oil production increase for next year "because of weaker global growth outlook, the ending of the restocking cycle and high inventory level."
"We forecast that the GCC states' aggregate, weighted real non-oil GDP growth will accelerate to 4.7 per cent this year and 5.2 per cent next year from 2.2 per cent last year, with a strengthening investment activity in 2010, but especially in 2011, given the time lag between project implementation and award," she says.
Project data shows all GCC countries seeing a sharp increase in project awards so far this year. Saudi Arabia, however, is seeing on year-on-year basis a small deceleration in the growth of number and value of awarded projects.
The average value of projects awarded so far this year in the GCC has risen to $261.8 million, up from $233.2 million this year and three sectors stand out in terms of projects awarded in this region: power, water and infrastructure.
Malik wrote: "Domestic and international banks are again increasing lending for projects, more so those with government backing and in the hydrocarbon, petrochemicals and utility sectors are being among the most favoured in terms of funding support. "When it comes to the investment environment in the UAE, mainly driven by Abu Dhabi, she wrote, "it is not as strong as the project data suggest."
"Consequently, we still see the UAE as having the weakest domestic demand environment in the region, with structural challenges in Dubai adding to this restraint," she continued.
Kuwait was upgraded in terms of its real non-oil GDP outlook for this year because of "the sharp increase in project awards and the new determination of the government to move ahead with its investment programme."
