• Home
• /
• Business

Trade surplus of GCC forecast to hit $585b

DUBAI — The combined current account surpluses of the GCC countries is projected to surge to $585 billion in the 2005-2007 period as a result of higher export earnings.

According to SAMBA of Saudi Arabia, the new record GCC surplus would be higher than the next two economies: China, with a projected $521 billion surplus; and Japan, with a projected $437 billion surplus.

Data from the Institute of International Finance (IIF) show a nearly tenfold increase in GCC current account surpluses from 2002 through 2006. The IIF's estimate of $227 billion for last year's current account surplus of the GCC countries compares with the IMF's estimated $571 billion current account surplus for all oil exporters, including Russia, Norway and Mexico.

IIF said that on the back of this record surplus, the foreign assets of the GCC have risen since the beginning of this decade by $400 billion, and now surpass $1 trillion, with the lion's share of the assets being held by state investment funds. "There are estimates that already for some of the smaller GCC members earnings from investments are on a par with or may even exceed earnings from hydrocarbons."

According to IIF estimates, from the beginning of 2006 through 2007, the GCC countries will purchase more than $450 billion in foreign assets, complementing the inward bias of overall investment expenditures. "Given the already robust official foreign assets of the oil producers, with their individual capital accounts in surplus, this is not surprising. With little information available, it is difficult to pinpoint the size of the international portfolios of government agencies, let alone their rate of growth."

In its forecast, SAMBA said Saudi Arabia, after recording its eighth consecutive current account surplus in 2006, which at $95.5 billion was also an all-time high, however, will see a drop this year. The bank said imports will grow at a similar rate to last year, but that oil export revenues will decline, due to the softer oil market. "As a result, merchandise imports will equal about one-half, rather than one-third, of the value of exports. With transfers, such as worker remittances, and trade in services taken into account, we forecast a current account surplus for 2007 of $58 billion, 39 percent lower than the 2006 surplus.

According to Lehman Brothers, with record surplus, the GCC countries are not only investing at home, they have become leading international investors abroad, both in portfolio and direct investments. "In the past few years the Middle East hydrocarbon exporters have joined China and the US as a major force acting on, and driving growth in, the global economy. This has manifested itself through the extraordinary increases in the current account surpluses of the GCC and the consequent purchases of consumer goods from the outside world; the internal regional investment boom; and the capital flows from the region in direct and portfolio investment, especially in the emerging markets of South and East Asia. This underappreciated source of, and influence on, global growth is likely to continue, helping to develop strong regional capital markets and sustain external capital flows throughout this decade. It is set to further enhance the region as a critical engine of global economic growth that will have lasting implications internationally."