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Sun 1 Nov 2009 06:57 PM

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Gulf economies seen recovering faster than others

Central bankers say generous spending amid downturn will help region's rebound.

It is too early for policymakers globally to begin withdrawing large stimulus packages as revival from the crisis is not over yet, but Gulf Arab economies should recover faster than others, central bankers said on Sunday.

The global economic turmoil sent Gulf Arab economies into a downturn this year but generous spending and rising oil prices are helping the world's top oil-producing region get back on its feet.

However, the world economy is still facing recession and high unemployment and will recover only gradually, Saudi Arabian Monetary Authority (SAMA) Governor Muhammad al-Jasser told a two-day financial forum in Kuwait.

"I don't think that the recovery will be fast. The recovery period will be gradual," he said. "Regarding the developing states and the Gulf countries, it will be quicker because of the opportunities of growth and the demographic changes in our countries and in countries like China and India.

"The activation of the exit strategies is still too early because the issue needs better utilisation and needs to be done gradually in the next months," Jasser said.

The kingdom embarked on one of the largest fiscal stimulus programmes among members of the Group of 20 rich and developing nations to unlock impacts of the credit crunch.

Around 9 percent of gross domestic product is expected to be spent between 2008 and 2010, Morgan Stanley has said.

Another G20 power, China, plans to keep active fiscal policy and loose monetary policy, Li Dongrong, an assistant governor at the central bank, told the forum.

"China's economy is at a critical juncture of stabilisation and recovery," he said. "Based on this judgement, we will continue to implement active fiscal policy (and) loose monetary policy."

Like other countries, China has started to debate the timetable for a gradual withdrawal of the monetary and fiscal stimulus it injected to help the economy weather the crisis.

Last week, British Prime Minister Gordon Brown urged the European Union, one of the Gulf's largest trading partners, to maintain stimulus measures until recovery is embedded.

G20 members gather in Scotland on Nov. 6 to discuss progress in restoring global growth and reforming the international financial system.

Analysts see expansionary fiscal policy in the Gulf in place well into 2010, when lending woes tied to an estimated $22 billion debt restructuring at two Saudi conglomerates may ease.

"It is very important that they stay the course and they continue the fiscal stimulus," said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. "At the time when banks have been more risk averse the state is coming in to support."

Kuwait, the third largest economy in the Gulf, is seen contracting this year before starting to grow again in 2010.

"We expect a growth but so far we have not found a proper figure to be estimated for 2010, it depends on so many variables," central bank Governor Sheikh Salem Abdul-Aziz al-Sabah said on the sidelines of the conference.

Asked how much he expected the economy to contract this year, the central banker replied: "From 1.5 to 2 percent."

The International Monetary Fund expects the Kuwaiti economy to fall 1.6 percent this year and grow 3.2 percent in 2010.

The fund sees Saudi Arabia and the UAE economies shrinking 0.9 and 0.2 percent this year, before registering growth of 4.0 and 2.4 percent next year, respectively.

Much smaller Bahrain may see growth of 2-3 percent this year, its central bank governor Rasheed al-Maraj said on Sunday, broadly in line with the IMF forecast of 3 percent.

His Lebanese counterpart Riad Salameh was more upbeat about his country's prospects, saying the economy could grow 6 percent or more next year following a 7 percent rise in 2009.

Gross domestic product growth is capable of being "six percent or more if things remain normal," Salameh told Reuters.

The Lebanese economy, has been hit less by the global downturn than the main Gulf economies with no real-estate bubbles such as in the UAE's emirate of Dubai. (Reuters)

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