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Thu 20 Oct 2016 02:25 PM

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Gulf economic growth forecasts cut further despite oil price rebound

Poll of 18 private sector economists predict 1.1% growth in Saudi Arabia, the region's largest economy

Gulf economic growth forecasts cut further despite oil price rebound

Analysts are continuing to cut economic growth forecasts for big Gulf Arab economies despite rebounding oil prices, suggesting they do not expect oil above $50 a barrel to let governments ease austerity policies, a quarterly Reuters poll found.

Oil has bounced above $50 in recent weeks from around $30 early this year, after Saudi Arabia changed course and decided to support output cuts by OPEC.

Thursday's poll of 18 private sector economists, conducted in the past couple of weeks, showed they expect dearer oil to benefit Saudi state finances; their median forecast for Saudi Arabia's fiscal deficit is now 12.1 percent of gross domestic product this year and 7.8 percent next year.

Those numbers are still very high by international standards but an improvement from the July poll, when analysts predicted a deficit of 13.5 percent this year and 9.4 percent in 2017.

Nevertheless, growth forecasts for Saudi Arabia have not risen. The analysts now expect gross domestic product to expand 1.1 percent this year, against 1.2 percent in the last poll, and 1.4 percent next year compared to 1.7 percent.

Spending cuts designed to bring the budget deficit under control are weighing on consumer spending, and a senior International Monetary Fund official told Reuters this week Riyadh had little room to slow its austerity drive.

The performance of Saudi Arabia's economy "will be determined by the fiscal consolidation and the ongoing monetary squeeze as weak deposit growth and high government borrowing keep monetary conditions tight," said Simon Williams, regional chief economist for HSBC.

"With external demand likely to remain subdued, we expect these weak drivers to cap growth at around 1.5 percent. This pace of expansion will stand some three to four percentage points below the oil-boom average, and is likely to see unemployment in the overwhelmingly young country rise."

A separate poll of energy analysts in a Reuters poll earlier this month were not convinced OPEC's proposal to cut output for the first time since 2008 would result in much higher prices.

Elsewhere in the Gulf, analysts cut their GDP growth forecasts for the United Arab Emirates, the region's second biggest Arab economy, to 2.3 percent from 2.5 percent for this year, and to 2.5 percent from 2.7 percent for next year. Predictions were also lowered for Qatar for both years.

The median forecast for the UAE's fiscal deficit was lowered to 5.4 percent of GDP this year from 6.4 percent. But Qatar, Oman and Bahrain are expected to run larger deficits this year than previously forecast.

Kuwait is now expected to run a 12.8 percent deficit this year instead of 5.3 percent, and 3.0 percent next year instead of 1.5 percent. Domestic political tensions have delayed austerity measures planned by the cabinet, and parliamentary elections called for Nov. 26 may cause some steps to be watered down, at least temporarily.