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The global financial turmoil has, at last, ended the boom cycle in most GCC states, says a key economic research report issued by Gulf Finance House (GFH).
The steep fall in crude oil prices from their peak last summer, output contraction across other key economic sectors, tight liquidity conditions and the fall in asset prices will make 2009 a challenging year for the GCC region.
However, the current environment is also creating attractive buy opportunities for cash-rich investors looking for gains over the medium to long term, says the latest issue of the GCC Economics and Strategy report.
Oil prices remain key to GCC governments' ability to spend their way out of a severe slowdown, says the report, which also raises the possibility of Kuwait reverting to the dollar peg to unclog its domestic money markets and to rejoin the GCC exchange rate mechanism.
"As we anticipated in our previous report, the GCC has now firmly joined the last group of countries to be impacted by the global financial crisis," said Dr Ala'a Al Yousuf, chief economist at GFH.
The GCC Economics and Strategy report, which is produced quarterly by the Economic Research Department of GFH, provides an in-depth analysis of the most important global and regional economic developments and their implications for the GCC region. The report is available on the GFH website at www.gfh.com
"While the GCC would be able to manage the challenges of lower oil prices, the region cannot stave off the effects of a protracted, global financial turmoil. Nevertheless, in a worst case scenario, the GCC's substantial public and private wealth will enable it to cope better than many large economies," said Dr Al Yousuf.
The fallout from the global financial crisis, coupled with the plunge in oil prices, has effectively ended the six-year economic boom which began in 2003 on the back of high oil prices that allowed strong government and private spending.
Hany Genena, senior economist at GFH, said the average aggregate GCC crude oil production levels are expected to post their largest annual percentage decline in at least a decade, while hydrocarbons export revenues are likely to fall by about 60 per cent to $200 billion (BD78 billion). Nominal GDP will shrink by about 30 per cent, with the possibility of an even bigger fall in aggregate GCC national income in case of a severe cut in government expenditures.
Thus, after several years of posting massive surpluses, the combined current accounts of the GCC states will nearly balance in 2009.
"The ability of GCC states to spend their way out of a severe slowdown depends on the cushion of reserves accumulated during the boom years," said Mr Genena.
"We believe Qatar will outperform other GCC states in terms of structural resilience and growth momentum in 2009, due in large part to a doubling of its liquefied natural gas export capacity during this year," said Mr Genena.
