Growth
The GCC region’s economy has tripled in size during 2002 to 2008. A combined nominal GDP of the region grew at the highest ever rate of 33.9% in 2008 to US$1075.98 billion compared to a growth rate of 10% to US$803.75 billion in 2007. The robust economic performance is attributed to strong global oil demand till late 2008; better geo-political environment; acceleration of reform measures; strong boost in privatization activities; growth of assets of central banks and the strength of the GCC corporate sector. Nominal GDP is expected to shrink strongly by a -20.4% to US$856.34 billion in 2009 because of uncertainties in the financial markets and lowered consumer confidence. Nominal GDP is forecast to rebound to grow at the rate of 14.8% to $982.79 billion in 2010. In real terms, the economy of the region grew by a 6.6% in 2008 compared to a rate of 5.2% in 2007, and is expected to grow at lower rates of 0.9% and 3.6% in 2009 and 2010 respectively.
Inflation
This region has a proven track record of very low inflation rates over a long period of time, especially until 2004, attributed to the prudent management of the fiscal and monetary policies and the adequate availability of goods & services in the region. Inflation remained benign between 0.2% to 2.1% during 2001 to 2004, but the region witnessed an explosive rate of inflation of 10.7% in 2008 compared to a 6.7% in 2007. A relatively higher inflationary pressure in general was mainly attributed to imported inflation; depreciation of the US Dollar against world major currencies; low interest rates; ample liquidity; high spending; shortage of housing; demand/supply imbalances for goods and services, especially food and beverages; and construction material etc. Inflation is expected to slow down to 5.1% and 4.6% in 2009 and 2010 respectively due to wise and timely policies of the governments of the region in view of slackening global energy demand and the world financial crisis.
Fiscal Position
The GCC region has posted a budget surplus of a 28.7% of GDP in 2008 compared to a 17.7% of GDP in 2007 due to high oil prices and increased oil production levels, coupled with a surge in non-oil revenues. High oil revenues earned by the region in the past resulted in strong capital spending. However, the region is expected to realize deficits of -4.9% and -2.8% of GDP in 2009 and 2010 respectively due to a slump in global oil demand and the corresponding decline in oil revenues. The region is aware of the fiscal reforms needed to reduce dependence on the oil sector to achieve fiscal discipline. Goal of achieving diversification is well in progress in the region despite the global financial crisis.
Currency
The monetary policy of the region will remain focused on maintaining a fixed exchange rate regime with the US Dollar. Kuwait was the sole exception to this regime as Kuwaiti Dinar was de-pegged to the US Dollar on 20th of May 2007. The GCC central banks' policy of limited foreign borrowing has kept liabilities low and thus contributed significantly to the long-term stability of the GCC currencies against the US Dollar. Although the US Dollar depreciated against the Euro, the Japanese Yen and the UK's Pound Sterling during the past three years, but the USA is the major trading partner of the GCC region therefore the GCC currencies peg to the US Dollar is in the interest of the GCC countries. A robust global oil market demand will enable further growth of the region’s foreign currency reserves, and ensure that there is no pressure on the currencies' peg. Moreover, none of them will revalue unilaterally, as they continue to plan for a GCC single currency. Total reserves minus gold of this region stood at US$ 107.24 billion at the end of 2008 compared to US$ 100.76 billion at the end of 2007. These reserves are expected to decline slightly to US$101.5 billion and $99.7 billion in 2009 and 2010 respectively.
External Accounts
The GCC region has witnessed record high trade and current account (balance of payments) surpluses supported by sustained global oil market strength. After a period of two decades of fluctuating oil earnings, this region experienced an economic boom with more than expected windfall oil export earnings until late 2008. The balance of payments on current account of this region recorded the highest ever surplus of US$292.26 billion (27.2% of GDP) in 2008 compared to US$201.97 billion (25.1% of GDP) in 2007, recording an increase of 44.7% in a year) on the back of higher oil and non-oil export earnings. Current account surplus is expected to decline sharply by -94.5% to US$16.20 billion (1.9%) in 2009 but the region is forecast to register a comparatively higher surplus of $78.11 billion (8% of GDP) in 2010.
