GCC oil revenues to hit Dh2.2tr by 2009

DUBAI - Oil revenues in the Gulf Co-operation Council (GCC) region are set to hit Dh2.2 trillion ($600 billion) annually for the oncoming two years, but GCC countries have to continue living with double-digit inflation and low interest rates, according to Gulf Finance House (GFH).

By (By a staff reporter)

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Published: Thu 31 Jul 2008, 11:35 PM

Last updated: Sun 5 Apr 2015, 1:02 PM

The Bahrain-based investment bank yesterday said the region's oil production would rise to 20 million barrels per day by 2010 from the present 17.5 million bpd. It added that incomes in the region are also on the upswing, with Qatar set to have the world's second-highest per capita income of Dh367,309.97 ($100,000) by 2009, next only to Luxembourg.

It added that business expansion and production growth in the Gulf region would fuel a boom in corporate lending brought about by higher demand in financing. It stressed that the GCC equity markets would by buoyed by the growth in liquidity and negative real interest rates.

"Banks will continue to enjoy strong growth in business volumes due to robust growth in consumption and investment, relatively low financial leverage of corporate GCC, high demand for Islamic financial products, access to stable deposits and cheap funding costs," GFH said in a statement from Manama.

Citing data from its economic research report, GFH added that total government expenditures in the GCC would reach Dh1.1 trillion ($300 billion) for 2008 while ongoing and planned projects by the private sector are worth Dh7.35 trillion ($2 trillion).

It said the GCC's nominal gross domestic product, or GDP reflecting current prices, would rise 36 per cent to Dh4 trillion ($1.1 trillion) this year from Dh3 trillion ($810 billion) in 2007 or double that of the 2004 figure.

Dr Ala'a Al Yousuf, the chief economist at GFH, stressed that this growth is "not without a price" saying the GCC countries of Saudi Arabia, Bahrain, Kuwait, the UAE, Oman and Qatar would have to contend with low single-digit interest rates and high double-digit inflation rates.

"With little recourse to monetary policy tools, all eyes are on the authorities' fiscal responses to these challenges," he said. Analysts earlier said the GCC is suffering from a record high inflation in 30 years and which will rise further on increased oil earnings, predicted to surge 75 per cent to Dh2.34 trillion ($636 billion) this year. They added that Inflation rates in the UAE, Oman and Qatar are hovering around 15-16 per cent while those in Kuwait and Saudi Arabia are over 10 per cent. Only Bahrain has a low inflation rate of about five per cent.

"In our opinion, the GCC is entering a phase of loose monetary-fiscal policy spiral which, together with a wage-inflation spiral, have trapped the region between two impossible trinities," said Hany Genena, a senior economist at GFH.

The statement said the GFH-designed trinity shows how difficult it is to maintain low inflation rates when commodity prices are high and interest rates are low. "However, as capacity expansions come on stream during 2009/10, there will be a gradual softening of inflationary pressures.

The conventional trinity of fixed exchange rate, free capital mobility and independent monetary policy suggests that central banks in the region adopt a loose monetary stance in the face of inflationary pressures, it added.

Besides the increased oil production seen over the next two years, cement capacity in the Gulf region will double to 100 million tonnes per year by 2010. Similar expansions are predicted for other industries, such as petrochemicals and natural gas.


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