Government finances are generally in a healthy position, after the recovery in oil prices over the course of 2009 delivered another year of budget surpluses for the region’s oil producers. Those high oil prices, along with strong performance in the non-oil sector, will deliver growth in gross domestic product of 6-8 per cent in 2010, with the GCC offering the greatest potential.
The region will also benefit from a sharp reduction in inflation, particularly in terms of construction costs and property rental prices, which this time last year were becoming a major problem. And with some exceptions, Middle East banks are in a relatively healthy position, thanks to strong regulators in key markets such as Saudi Arabia and Bahrain, and high levels of liquidity in the Islamic banking sector. Together, these factors will sustain solid economic activity in the region in 2010, particularly in the projects sector.
The development of infrastructure will be a notable theme in the oil-rich countries, as governments use their reserves to fund power, water, transport, housing, education and healthcare projects.
Yet it is not all good news. A fall in construction costs over the past year means that many energy projects are being retendered, as clients try to ensure they do not overpay for their schemes. This review process will slow down the development of new oil and gas facilities in 2010.
The effects of the global economic downturn will continue to be felt across the region throughout the next year and many businesses will find it difficult to adjust to the new economic climate, not least in the construction industry.
While many planned projects were put on hold in 2009, there was still enough work from previously launched schemes to keep many construction companies busy. But as these projects are completed and no new ones take their place, contractors will be forced to lay off more workers.
Companies that rely too heavily on a single market, particularly Dubai, will be hit hardest by this. As confidence begins to return to the market in 2010, and bank lending restarts, firms with a diverse portfolio of activities, in terms of countries and sectors, will be best placed for recovery.