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GFH Economic Report: GCC oil revenues to cross $600 billion
The strong economic and investment boom in the GCC region will continue apace for the medium term, says a key economic research report issued by Gulf Finance House (GFH).
- Staff Report
- Published: 00:02 July 31, 2008
Manama, Bahrain: The strong economic and investment boom in the GCC region will continue apace for the medium term, says a key economic research report issued by Gulf Finance House (GFH).
With oil prices expected to remain in triple digits for the remainder of 2008, and several major capacity expansions in the pipeline across oil and non-oil sectors, the GCC states remain firmly on course for strong, broad-based economic growth for the medium term.
Oil revenues are expected to cross the $600 billion mark annually for 2008 and 2009. Aggregate GCC government expenditure is forecast reach $300 billion for this year, while private sector projects planned and currently underway are valued at about $2 trillion.
GCC nominal gross domestic product (GDP) is forecast to cross the $1 trillion milestone for this year to a total expected to reach $1.1 trillion. This represents an increase of 36 per cent over the 2007 estimate of $810 billion and double that of just four years ago in 2004, says the GCC Economic Outlook 3Q2008 report.
Average incomes in the region are also surging, with Qatar set to rub shoulders with Luxemburg in 2009, as the two countries with the highest per capita income in the world.
"All of this good news is, however, not without a price," said Dr Ala'a Al-Yousuf, Chief Economist at GFH.
"GCC states will have to live with the paradox of low single-digit interest rates and high double-digit inflation rates. With little recourse to monetary policy tools, all eyes are on the authorities' fiscal responses to these challenging times."
"In our opinion, the GCC is entering a phase of loose monetary-fiscal policy spiral, which, together with a wage-inflation spiral, have trapped the region between two impossible trinities," said Mr. Hany Genena, Senior Economist, at GFH.
Whereas the conventional trinity (fixed exchange rate, free capital mobility and independent monetary policy) suggests that GCC central banks have to adopt an inappropriately loose monetary stance amid surging inflationary pressures, the GFH-designed trinity explains the difficulty of maintaining low inflation rates amid high commodity prices and low interest rates.
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