With oil prices in September above $60 a barrel for the fourth consecutive month and demand forecast to be back in the final quarter of where it was in October-December 2008, fears of an oil market meltdown have been dispelled.
It has been a rocky ride. During the past two years, oil hit a record level of almost $150 a barrel in July 2008. It experienced its sharpest ever fall to less than $40 a barrel in December 2008 and has almost doubled in the nine months since then.
Swings like that might suggest the oil market is hopelessly volatile. But the average for 2008/09 of about $77 a barrel is in line with the trend seen since the end of 2003. Freak global conditions in 2009 and last should not deflect attention from the fact that oil has been following a secular pattern of rising by an annual average of about 8-11 per cent. This seems to be behind new forecasts by Morgan Stanley and Total that oil could rise above $100 a barrel in 2012.
Translating these facts and forecasts into a projection for the GCC economy is comparatively straightforward. Assuming oil averages $60 a barrel in 2009 as a whole, which seems likely, and factoring it in at $70 in 2010, as economists are now tending to do, even a small increase in GCC oil output produces startling macroeconomic results.
The gross domestic product (GDP) of the GCC in dollar terms contracted sharply in 2009 but is likely to rebound by up to 20 per cent in 2010 to more than $1 trillion. A small aggregate budget deficit in 2009 will be converted into a $40bn total surplus in the next one. A $70bn current account surplus, equivalent to about 7 per cent of GDP, will be recorded.
This pattern is in line with forecasts made at the start of 2009. These were based on the assumption that international oil cartel Opec’s production restraint, coupled with the impact of stimulative economic programmes, would lead to a swift oil price recovery. What is new is the spreading conviction that oil will stay above $70 a barrel and could start advancing steadily from 2011. If that happens, Gulf GDP will expand by about 10 per cent in dollar terms every year to the middle of the next decade. The region’s combined current account surplus will probably exceed 5 per cent GDP in the same period.
The benefits of the new oil cycle will be unevenly spread. Per capita GDP in Qatar, the richest country in the GCC by that measure, will continue to be four times that in Oman, on average the poorest GCC state. Growth in Bahrain could be little more than half the GCC average in 2010-14.
Nevertheless, it is difficult to avoid the conclusion that the recession, widely declared to be past its worst in North America and Europe, has had a limited direct impact on the GCC and the region is already leading the rest of the world into a new era of expansion. Calculations based on likely oil price and demand levels in 2010 suggest the GCC will be the fastest-growing economy on earth in 2010.
This reality is slowly affecting business confidence in the region. The scale of the oil price crash and the real estate market collapse tested the nerves of even the most optimistic investor. No one in business is in a hurry to start spending again. But the projections for 2010 suggest GCC markets are entering a new era of robust growth. It is time to start saying yes again.
By September 2010, the memory of the slump will have faded. And it would be surprising if some of the problems that preceded it did not start to resurface: labour shortages, limited residential and commercial accommodation in key GCC markets and a general rise in prices. But those are tomorrow’s challenges. Today’s are convincing yourselves, and your customers, that the slump has gone and the only way to go is up.