Merrill ups GCC growth forecast

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GROWTH FORECAST: Merrill Lynch has revised its projected GCC economic growth forecast to over 6 percent. (Getty Images)

Merrill Lynch has revised its projected GCC economic growth forecast for 2008-09 upwards from 5 to over 6 percent, due to the increase in oil prices and high growth in non-oil sectors.

In Merrill’s first quarterly GCC report, the firm predicts that the average oil price will be $130 per barrel during 2008-09, and has increased the expected economic growth rate in the region to 6.4 percent.

“The high oil price bumps up external and budget surpluses and liquidity keeps flowing,” UAE daily Emirates 24/7 quoted the report on Sunday.

“The recent spike in prices confirms that the risk is on the upside. We now expect the GCC current account surplus to reach 36.2 percent of GDP this year.”

The report predicts that the oil windfall will boost infrastructure spending and highlights the increasing prospects of the non-oil sectors. However, it cites rising inflation as the key macro challenge for the GCC.

“The current spike in oil prices benefits the growth prospects of the GCC, with a $10 increase in oil price adding $50 biilion to revenues,” it said.

“Larger external and fiscal surpluses allow governments to press ahead with more diversification."

Merrill Lynch says the hydrocarbon sector will grow by 3 percent this year, accounting for 33 percent of the GCC economy, while growth in the non-oil sectors will reach 7.5 percent.

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