GCC Economic Outlook

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July 12, 2008

GCC Economic Outlook
Howard Handy, Samba Chief Economist

Editor's Note:

Today for your consideration, we present a Samba report on the GCC Economic Outlook. This report is the latest in a series of insightful documents prepared by the office of Samba's Chief Economist Howard Handy. This SUSRIS IOI provides the summary from the Samba report and links to the complete document.

We thank Samba and Mr. Handy for producing these informative reports and sharing them with you.

GCC Economic Outlook
Office of the Chief Economist of Samba

The six countries of the Gulf Co-operation Council (GCC) -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE -- are enjoying a spectacular economic boom-one that we expect to continue over the medium term. The GCC economy is set to surge past $1 trillion in nominal terms in 2008, marking a three-fold increase in only five years. This will push the GCC economy past that of South Korea and put it on a par with India.

Real GDP growth, which is expected to reach 8.2 percent in 2008, has tended to fluctuate in line with oil output (four of the six countries are members of OPEC). The contribution of the non-oil sector has been more vigorous and more stable, and has been the engine of the current boom. Assuming non-oil GDP growth this year of 8.5 percent, the five-year average for the 2004-08 period will be a robust 7.7 percent, a full percentage point higher than overall GDP growth.

Financial indicators are also impressive. The average fiscal surplus is expected to reach 35 percent of GDP in 2008, while the aggregate current account surplus will near 40 percent of GDP. Net foreign assets are expected to reach almost $2.2 trillion in 2008.

The economic outlook for the region is positive. We anticipate further gains in global oil prices as strong demand (particularly from Asia and the Middle East) continue to outstrip incremental additions to supply. Robust hydrocarbons earnings will underpin government investment and private confidence, while the latter will be further supported by continued (albeit haphazard) economic liberalization. This should help to keep real GDP growth at around 8 percent over the medium term.

Nevertheless, there are a number of risks and challenges for policy. Foremost among them are rising inflation, which will surpass 10 percent this year, related supply bottlenecks and constraints, and the uncertainties stemming from the recent turmoil in international financial markets as well as the weakening of the global economy. None of these is likely to derail the region's economic prospects, but each could impair the business environment and act as a drag on growth.

To view this report in its entirety, click here.

June 2008
For comments and queries please contact:
Howard Handy
Chief Economist & General Manager of Samba
+966 1 477 4770 Ext. 1820
[email protected]

Reprinted with permission of Samba.

This and other publications can be downloaded from Samba.

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