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Tue 16 Aug 2011 07:30 PM

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Oman's economy grows by 15% in Q1 on oil price

Inflation in sultanate edges down in June from two-year high of 4%, according to new data

Oman's economy grows by 15% in Q1 on oil price
Robust oil prices helped Omans economy grow by 15.3% in the first quarter of 2011, new data shows.

Oman's economy grew by a faster 15.3 percent in the first three months of this year thanks to robust oil prices, and inflation edged down in June from a two-year high to 4 percent, touching the lower end of the central bank's forecast, data showed on Tuesday.

The small non-OPEC oil producer, which faced several public protests this year demanding more jobs and an end to corruption, posted growth of 11.8 percent in nominal terms year-on-year in the last quarter of 2010.

"This is a good performance given the unrest in the first quarter, although much of the nominal growth could be accounted for by higher oil prices," said Liz Martins, senior MENA economist at HSBC. "The key will be whether this feeds through to job creation, particularly among Omani nationals."

Oman's gross domestic product rose 4.1 percent on a quarterly basis in January-March in nominal terms, down from 8 percent in the previous quarter, the finance ministry data also showed. The country does not release real GDP data on a quarterly basis.

The Gulf Arab sultanate boosted its oil output by nearly 4 percent year-on-year to 79.8 million barrels in the first three months of 2011, when crude prices rose to as high as $107 per barrel fuelled by revolts in the Arab world.

Its hydrocarbon-related GDP, which accounts for nearly half of the $58 billion economy, jumped by 17.8 percent in the first quarter, the preliminary data also showed.

Protests prompted Sultan Qaboos bin Said, a US ally who has ruled Oman for 40 years, to promise $2.6 billion in spending in April. He also announced plans to create 50,000 new jobs, among other measures.

A central bank official said on Monday Oman's economy was expected to grow by 5 percent in real terms this year, faster than 4.1 percent forecast by a Reuters poll of analysts in June . The International Monetary Fund estimated that Oman's real GDP rose 4.2 percent in 2010.

Besides the higher oil production, increased fiscal spending - some 11 percent higher than the original plan - is seen as one of the factors supporting Oman's GDP performance this year at a time when growth in the West is stalling.

Spending was up 12.1 percent at OR3.9 billion ($10.2 billion) in the first half of 2011 from a year earlier, although the government was still able to book a surplus of OR386.6 million, or 1.7 percent of GDP, the ministry data also showed.

Bank lending growth in Oman, which pegs its rial to the US dollar, has also picked up over recent months to hit a two-year high of 12.6 percent in June, central bank data showed on Tuesday.

Foreign trade remained strong, although import growth slowed sharply to 9 percent in March from 26 percent in the previous month, the ministry data showed on Tuesday, and oil prices plunged to $86 per barrel.

Annual inflation in the country slowed to 4 percent in June from a two-year high of 4.4 percent in May, matching analysts' forecast for 2011 average and well within the central bank's 4-5 percent projection for this year.

Consumer prices grew 0.1 percent on the month in June, down from a 0.4 percent increase in May as a rise in food costs, which represent a third of expenses, slowed.

The holy Muslim month of Ramadan, which falls in August this year, is seen putting a one-off upward pressure on prices, although inflation should keep trending down in the rest of the year due to weakness in developed economies.

"It (the Ramadan effect) is just a blip that dies out," said Fabio Scacciavillani, chief economist at Oman Investment Fund.

"The inflationary pressures, which were already weak, are ebbing and they would probably ... abate further in the rest of the year because the global situation is weak. With today's German GDP figures it is clear that there is a global slowdown," he said.