By Andy Sambidge
New KFH-Research report says economies will benefit from strong oil and gas revenues
Economies in the GCC are set to achieve a combined surplus of up to $500bn this year, a new report has forecast.
KFH-Research, a unit of Kuwait Finance House, said the GCC region would see on average 6.5 percent growth in 2012 as a result of strong oil and gas revenues.
The study also said that the average inflation rate in GCC countries will increase to four percent this year on the back of rising food prices.
It added that interest rates will remain stable in the region until 2014, ruling out a return to the high rates seen prior to the global economic crisis.
"The GCC is expected to benefit from the increased reorientation of external trade demand from developed countries in the West towards fast-growing emerging markets," KFH-Research said.
It added that Asia will be the most important emerging market region for the GCC with oil consumption growth seen at 4.4 percent per year on average over the next five years.
"Aggregate trade balance is expected to record a massive trade surplus of $400-500bn in 2012 on the back of robust hydrocarbon exports," the report said.
KFH-Research also said it expects foreign direct investment (FDI) inflows into the GCC and productivity to improve in the coming years as significant number of business reforms are being implemented.
According to the World Bank, governments in 13 out of 20 Arab economies have implemented regulatory reforms aimed at improving business environment for local entrepreneurs.
The report added that fiscal expenditure in the GCC is expected to remain high in 2012 as governments continue to expand subsidies, transfers and public-sector wages to meet higher social demands and reduce unemployment.
"However, we expect GCC's fiscal balance to record a surplus of 15.3 percent of gross domestic product (GDP) in 2012 from 12.9 percent of GDP in 2011 as increased government expenditures will be counterbalanced by higher oil revenues," KFH-Research said.
It added that the crisis in the European Union (EU), the largest trading partner for the GCC, remained the biggest downside risk for local economies.
"Exports demand from the euro-area, particularly for oil will remain weak following the sovereign debt crisis. Slower economic activities will lead to slower consumer demand for goods and services," the report said.