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Gulf Economies will Shrink to $935 Billion

“Most Gulf Arab economies are expected to grow at their slowest pace in 2009 since the oil boom began six years ago. Real economic growth in Saudi Arabia, the UAE and Kuwait will see slowing below three per cent next year as the global recession and tight credit markets hurt activity in the region,” said Dr Rasim Kaan Aytogu, Group Executive Director, Tanmiyat group.

Many analysts recently slashed most Gulf growth forecasts by more than half since they were last polled in July as the financial turmoil drove many major economies, including the United States, Japan and Germany into recession. “The Gulf is more reliant on oil export revenues than what people have perceived and how they have portrayed themselves. Since July, oil prices collapsed about three quarters from a record above $147 (Dh540) a barrel, sinking to under $34 a barrel a couple weeks ago, as the global downturn hit oil demand, forcing Opec to commit to slashing output by 4.2 million barrels a day,” he said.

Dr Rasim said for the world’s biggest oil-exporting region, production cuts would have a severe impact on economic growth next year. “The combined size of Gulf economies will slump from $1.05 trillion last year to $934.5 billion next year. Real growth of 2.4 per cent in Saudi Arabia would be the slowest expansion for the world’s top oil exporter since 2002.”

The Saudi economy, set to expand 4.9 per cent this year, has grown about 30 per cent since 2002 — the result of an oil price rally that enabled the region to pump windfall oil revenues into projects designed to reduce their reliance on volatile oil, he said.

GDP growth in the UAE is decelerating to 2.7 per cent next year from 6.8 per cent in 2008, the slowest growth for the second largest Arab economy since 2001, he pointed out.

“The abrupt slowdown in the UAE may be amplified by a series of job cuts in Dubai, which is suffering from a property market correction that has battered demand in the services, retail and tourism sectors. The extent of the slowdown in economic activity in the non-oil sector across the Gulf will be a key element to monitor in 2009. Investment spending by private firms and net exports would likely experience a slowdown as well next year but still contribute positively to GDP,” he said.

“While Gulf States seem poised for expanding their budgets to weather the global recession, the private sector is already pulling out of investments due to funding constraints. The silver lining on the pessimistic regional growth outlook is that inflation, cited as the big cloud hanging over the region’s growth, is receding,” he said.

· issacjohn@khaleejtimes.com