Oil revenues are cornerstone to GCC growth

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A new report by Fitch Ratings states that high oil revenues, as well as strong growth in non-oil sectors, will underpin a robust GCC economic performance in 2013.

Despite the positive outlook, Fitch’s Quarterly GCC Sovereign Credit Overview reduced the economic growth forecasts for the region due to a more pronounced cut in oil production than previously expected.

As a result, Fitch has raised its Brent oil price forecast to $105 per barrel for 2013.

The report also pointed out that Saudi Arabia has cut its oil production so far this year, and other producers in the GCC are close to capacity, meaning the oil sector will slow down economic growth across the region.

More impetus has been put upon non-oil sectors throughout the GCC, with Dubai leading the way, approaching record high indicators of trade, tourism and logistics.

Oman has recently pumped $182m into start-up businesses and small and medium enterprises, and Saudi Arabia’s budget has expanded, expected to bolster high levels of business and bank lending. Furthermore, political tensions have eased in Kuwait, leading the government to implement capital spending and economic reform more aggressively.

In Bahrain, however, the report states is does not expect the rebound in economy in 2012 to be sustained.

The report also concluded that the region’s long-standing exchange rate pegs to the US dollar will remain in place over the medium term. It does not expect a planned regional single currency to materialise, citing the absence of both strong political support and significant economic benefits.

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