The immediate economic outlook for most of the Gulf’s wealthy Arab oil exporters has improved in the last several months despite a sharp drop in global oil prices over the period, a Reuters poll of analysts showed yesterday.
Since the previous poll was conducted in March, the price of Brent crude has plunged by $40 to as low as $88 per barrel because of signs that the global economy is slowing.
But oil has since recovered to around $99, and analysts believe that level, combined with heavy government spending and healthy consumer demand, will be enough for the Gulf states to continue growing strongly this year and next.
The latest Reuters poll of 17 analysts, conducted this month, found them raising their 2012 gross domestic product growth forecasts for three of the six members of the Gulf Co-operation Council (GCC).
Qatar remained the top projected 2012 performer with a 6.3% growth forecast, although that was down from the March poll’s prediction of 6.6%.
Saudi Arabia, the biggest Arab economy and the world’s top oil exporter, is now expected to expand at a median rate of 5.2% this year, instead of the 4.5% forecast in the March poll. Last year, the Saudi economy grew 6.8%.
In the United Arab Emirates, GDP growth is now forecast to slow to 3.2% this year from 4.2% in 2011. The latest forecast is slightly more optimistic than 3.1% predicted in the March poll.
“Downside risks exist from Europe and the world economy. But this aside, growth in the GCC should hold up reasonably well,” said Daniel Kaye, senior economist at National Bank of Kuwait.
“Despite the recent fall in oil prices, fiscal and external balances will remain very solid.”
For most Gulf economies, however, forecasts for growth in 2013 fell from the last poll in March. Saudi Arabia’s outlook for next year was cut to 4.0% from 4.3%, while the UAE was lowered to 3.4% from 3.6%.
Oil and gas revenue provides most of the budget income of Gulf states, which boosted spending on pensions and wages last year to ease social tensions such as those that simmer in Bahrain. Nevertheless, most countries are expected to enjoy large fiscal surpluses this year and next, the poll showed.
Saudi Arabia is expected to book a surplus of 13.2% of GDP in 2012, up from 12.4% predicted in March’s poll, with the UAE unchanged at 5.9%.
“We expect Saudi oil production to increase a little bit this year and we think the government spending will be trimmed a little bit by around 5%, but that really reflects last year’s outsized spending,” said James Reeve, senior economist at Samba Financial Group in London.
“In the short term, they can easily cope with significantly lower oil prices as they did in 2009. But they need to get a handle on domestic oil consumption in the medium- to long term.”
Kuwait is projected to post the largest surplus of 22.3% of GDP for its fiscal year, which started in April - partly because a political standoff between the cabinet and opposition members of parliament is delaying expenditure on big infrastructure projects.
Bahrain, which analysts believe needs an oil price averaging about $115 to balance its budget — by far the highest price in the Gulf — is forecast to be the only GCC country in the red in 2012, with a budget deficit of 2% of GDP.
However, that would be a smaller deficit than the 3.7% gap forecast by the last poll in March.
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