By Martin Dokoupil
Qatar is predicted to outperform the rest of the region, Saudi and UAE to grow more modestly - poll.
Gulf Arab states will enjoy solid growth rates next year thanks to rising oil prices and inflation may speed up slightly again due to loose monetary policies and a weak dollar, a Reuters poll showed on Monday.
The global financial crisis sent the top Gulf economies – Saudi Arabia and the UAE – into a downturn this year, freezing credit and forcing the world's largest oil producing region to slash output.
Qatar will outperform the rest of the region with a 12.5 percent growth spurt next year in gross domestic product, from 8.0 percent this year, due to massive expansion of its gas facilities, according to the poll of 13 economists conducted November 11-23.
Both the Saudi Arabian and UAE economies are expected to grow much more modestly at around 3 percent in 2010, after a forecast fall of roughly one percent this year, partly because banks remain reluctant to lend following financial restructuring of Saudi family-run firms.
The much smaller sultanate of Oman, which did not have to take part in OPEC-led oil output cuts, should see GDP growth of 4.3 percent next year, while Kuwait and Bahrain will manage growth of only 2.7 percent and 2.6 percent, respectively.
"For 2010, it is reasonably positive because of oil prices that we are expecting to keep ticking up and private consumption growth should see some recovery in 2010," said James Reeve, senior economist at Samba Financial Group in London.
"However, the outlook for private investment is quite mixed; credit constraints are still quite severe in most of the region," he said. Credit growth in the Saudi kingdom almost came to a halt in September, while UAE banks set aside more funds as provisions for bad loans in the third quarter in a biggest quarterly jump this year.
Even though the outlook for the six Gulf oil producers looks brighter than several months ago, fears that the world economy may slide back into recession in the second half of next year pose the biggest risk for the region.
"The key risk to the positive outlook is the pace of the global recovery and that oil prices may fall sharply," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.
"Current and fiscal accounts could remain ... positive if oil prices average above $70," he said.
Oil prices have more than doubled from this year's trough to around $78 a barrel, but are still only half way from their 2008 summer peak of $147 a barrel. The latest Reuters crude oil poll predicted an average price of $74 a barrel in 2010.
Higher oil prices were also likely to improve the fiscal balances of Gulf governments, which have spent heavily to help their economies weather the crisis, with robust surpluses expected for all the countries next year.
A weak dollar together with loose monetary and fiscal policies are also likely to revive inflationary pressures.
But analysts said consumer price growth in the region should stay well below last year's record highs, even if the dollar's slide to 15-month lows posed a risk for Gulf countries that peg their currency to the dollar.
"We see dollar weakness to be the key driver for inflationary pressures next year," said Monica Malik, senior economist at EFG-Hermes in Dubai.
"We see ... countries with an ample supply of housing such as the UAE via Dubai and Qatar as having a weaker inflationary environment than the countries that still have a tighter domestic housing supply," she said.
Saudi Arabia and Oman should see the highest inflation of 5.0 percent next year, followed by Kuwait with 4.0 percent, while inflation should bounce back to 2.9 percent in Qatar and the UAE, which have experienced deflation after consumer price growth of over 10 percent in most Gulf countries last year. (Reuters)