Economic growth in the GCC will fall in 2012 as growing downside risks cloud the region’s outlook, according to the latest forecast from the Washington-headquartered International Monetary Fund (IMF).
GCC growth in 2012 is now forecast to slow to 4 per cent, down from 7.2 per cent forecast for 2011 putting growth in 2012 below rates seen throughout most of the past decade.
The main factors behind the forecast are slowdowns in Qatar and Saudi Arabia. Growth in Qatar is expected to slow from 18.7 per cent in 2011, to 6 per cent in 2012, while in Saudi Arabia growth is forecast to fall from 6.5 per cent to 3.6 per cent. The declaration is mainly a result of a sharp ramp up in oil production in 2011 to fill the loss of production from Libya, which is not likely to be repeated in 2012.
Downside risks to the regional economy are also growing, according to Masood Ahmed, director of the IMF Middle East and Central Asia department.
He says the IMF has made downward revisions to its forecast for all regions in the world since its last research was published in April, largely because of continued economic problems in the US and Europe.
“The basic outlook for the GCC is positive as a result of higher oil prices and higher oil production,” says Ahmed. But he adds that risks of a fall in the oil price, in an environment when breakeven oil prices (the price at which government revenue matches expenditure), are rising. For Saudi Arabia, the breakeven oil price is now $80 a barrel, up by around $30 a barrel since 2008.
“The region is facing a global economic slowdown like in 2008, but this time it is not at the top of a credit bubble so it will not feel like as much of a slowdown as it did then,” says Liz Martins, senior economist at the UK’s HSBC Group. Martin says that because the region is tied more to economies in Asia rather than Europe, together with continued strong government spending, the slowdown should not impact consumption and investment.
The slower growth in Qatar is due to the end of its programme of bringing more gas production capacity on stream, although economists say growth should now transfer to the private sector meaning that consumers should not feel like the economy is slowing.
For the oil importing countries in the Middle East and North Africa region, the economic outlook has deteriorated markedly, largely because of the destablising impacts of protests against governments across the region.
Before demonstrations erupted in late 2010, the IMF was forecasting growth in the oil importing countries, which include Egypt, Jordan and Tunisia, of 5 per cent in 2012. This has now been slashed to 3.1 per cent.
“In April, we were saying there would be a slowdown [in the oil importing countries], but there was a sense that there would be a rapid recovery,” says Ahmed. “Now, the oil importers face both external and domestic pressures.”
He says budget deficits in the oil importing countries are set to rise as governments try to take short-term measures, such as boosting subsidies and salaries, to appease the population.
After a year of intense social unrest, growth may not be fast enough to meet the demands of protesters, who took to the streets. “I don’t think these economies will be growing fast enough to create jobs at the rate the population is hoping,” says Martins.