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The storm has begun to pass for the GCC countries whose economies have taken a severe beating in 2009 in the wake of the global economic slowdown.
As the economies contracted, the dollar GDP and capital GDP went down, and from six per cent average growth in 2008 the countries have clocked close to zero growth rates in 2009. Although the countries had enormous wealth at their disposal, the Gulf has proved more vulnerable to global recession than many other emerging markets, why?
The enormous wealth at the disposal of its governments, the early recovery in oil prices and the importance of domestic demand as a driver of economic growth should have seen the Gulf outperform most other emerging markets.
However, a disappointing policy response, the excesses of the previous boom and an ongoing credit squeeze have slowed recovery, notes Simon Williams, HSBC chief economist, Gulf markets.
What do the coming years hold for the Gulf countries?
"Our conviction, however, is that we have reached an inflexion point that will show itself in an uptick in activity in the last quarter of 2009 that will gain pace in 2010 and 2011," he says.
Growth in public spending will be the catalyst for the turn around as the increases in spending delayed from the first part of 2009 are coupled with increasingly robust expenditure growth in 2010 budgets, bolstered by high oil prices.
The impact of rising public spending will be boosted by growing foreign capital inflows as the region regains access to increasingly liquid global debt and equity markets to fund domestic development. These two areas of spending growth should act as a catalyst for domestic demand both by boosting capital outlays and feeding through into greater financial sector liquidity.
As confidence starts to turn, it will encourage an uptick in commercial bank credit creation. Even with an improvement in liquidity and upturn in confidence, the pace of credit growth will be relatively modest as banks take time to rebuild and strengthen their balance sheets and concerns over asset prices persist, he says.
However, anticipated annual loan growth of 10 per cent and more in some regional economies from 2010 will give the private sector access to fresh funding for the first time in almost 18 months. The upward trend in loan growth is likely to steepen.
"We expect headline economic growth rates to approach 4.5 per cent in 2010 across much of the Gulf - a rate of expansion that is only a little short of the 2003-08 average and a trend which will create the appearance of a V-shaped regional recovery," he says.
Will the recovery be uniform or would some countries fare better than others?
The structural similarities of the Gulf are such that each of the regional economies will follow the same broad trends over the corning two years. However, there are grounds to anticipate significant variation in both the pace of economic upturn, and the speed at which it arrives.
HSBC predicts that that Saudi Arabia, Qatar and Abu Dhabi will perform the best.
These economies are in a better position to absorb the damage caused by the implosion of the last boom. The other factors in their support are readiness of governments to increase spending, the capacity of commercial banking sectors to resume credit growth and the ability of local corporates and financials to tap global capital markets.
What about the smallest economies in the Gulf?
"We are less optimistic on the outlook for the Gulf's two smallest economies - Oman and Bahrain -_although in some ways their return to trend growth rates should be more straightforward. In neither economy did the 2003-08 boom build the same momentum as it did elsewhere in the region and though there was a significant pick up in real estate activity, bubbles did not emerge," says Mr Williams
Private sector credit growth has slowed sharply after successive years of strong growth. However, at 40 per cent of GDP, the private sector appears much less leveraged and much less reliant on credit.
Oman and Bahrain have not been required to cut output and thus have not been subject to the same downward pressure on net exports.
"Our concern, however, is that these two economies lack the hydrocarbon wealth and fiscal resources of those we place in the top tier. We suspect that public spending in both economies is more vulnerable to revenue decline than is the case in other oil-dominated states and that the decline in spending growth was more marked and is less likely to give way to sharp gains.
"We judge that this is particularly likely in Bahrain where, unlike any other central government, the authorities were required to increase borrowing on the domestic market to fund recurrent revenue shortfalls," he adds.
