Merrill Lynch vouches for GCC

Dubai: The GCC governments are likely to use their massive reserves to spur growth in the face of economic slowdown and will "easily" meet their foreign debt repayments, investment bank Merrill Lynch said on Tuesday.

The six-nation bloc of oil producers is better positioned for the global downturn, but the net impact of the global financial turmoil will still be lower growth and smaller surpluses, it said in a research.

However, it cut 2009 gross domestic product growth forecast for the GCC to 4.5 per cent from 6.2 per cent due to the weakening global backdrop and lower oil prices.

Merrill Lynch said that foreign debt repayments for the GCC countries appear easily manageable "even in the scenario of a complete absence of liquidity."

The region will need to repay $15 billion this year and $35 billion next year. The Wall Street bank said the key comfort for the corporates is that state-owned companies account for 92 per cent of the total to be repaid this year and 61 per cent for next year.

It forecast a "disastrous" third quarter for Gulf equities, but insisted that "strong longer-term growth story is intact."

In the near-term, markets are likely to remain challenging as "valuations, liquidity and technicals are not appealing," it said.

A Standard Chartered Bank economist said on Monday the expected slowdown in the region would create balanced growth against the "euphoric boom" of recent years.

"In the housing market, we are probably going to see a more benign correction. The market is severely constrained in terms of supply. It is difficult to find a buyer of anything throughout the world, there are still buyers in the UAE for properties," said Marios Maratheftis, regional head of research at Standard Chartered.

Among other concerns, the UAE could be affected by a decline in global trade as Dubai is the third biggest re-export centre in the world after Singapore and Hong Kong.