Business | Investment
Gulf remains safe haven for investments
With oil prices above $135 a barrel, the six Gulf countries together are estimated to accumulate their current account surplus by $1 billion a day, adding up to $360 billion for 2008, according to Merrill Lynch, a global investment bank.
- By Babu Das Augustine, Banking Editor
- Published: 00:08 July 14, 2008
Dubai: With oil prices above $135 a barrel, the six Gulf countries together are estimated to accumulate their current account surplus by $1 billion a day, adding up to $360 billion for 2008, according to Merrill Lynch, a global investment bank.
The bank estimates that in the short to medium term, the Gulf region will have abundant liquidity and will continue to be a safe haven for investments.
Home to 40 per cent of the world's proven oil reserves and 25 per cent of natural gas reserves, the region's surpluses are big and are getting bigger.
Merrill Lynch analysts estimate that a $10 rise in the per-barrel price of oil will increase GCC export revenues by $55 billion.
Currently the region's non-oil growth accounts for 80 per cent of GDP growth and 70 per cent of the $2 trillion of investment projects are targeting improvements in infrastructure.
Despite the recent easing in fiscal policy to fight inflation through unorthodox policies (higher wages and subsidies, and lower import tariffs), GCC countries are still prudent in their fiscal spending, saving almost 70 per cent of their oil windfall.
According to Merrill, the fiscal prudence of Gulf governments in the current oil boom makes it solid macro story, which cushions the storms in global markets and paints a bright medium-term picture.
Asset bubbles
High inflation is a major medium-term challenge to the sustainability of the GCC's business model. With low interest rates combined with loose monetary policy, these markets are still flushed with liquidity.
While part of this liquidity is feeding sovereign wealth funds and is invested offshore, the monetary expansion and credit growth is still likely to push asset prices higher in the short term in the region and inflate the asset bubbles in the medium term, the bank said.
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