The study, “A Short, Sharp Shock” forecasts that the region’s GDP at current prices would contract to $ 835 billion in 2009 compared with $ 1.1 trillion in 2008. “However, that this setback will only shrink the GCC economy back to the size it was in 2007.”
There will also be a contraction in GCC GDP at constant prices. According to the forecast, GCC governments in total will report a budget deficit of about $ 5 billion in 2009 compared with a surplus of about $ 225 billion in 2008. The region’s current account surplus will effectively fall to zero from more than $ 350 billion in 2008, a record level, the study said.
The study said the single positive development for the GCC in 2009 would be a significant decline in inflation. “This reflects the impact on import prices of the rebound in the value of the dollar against some international currencies and lower global commodity prices.”
The outlook for 2010, due to the oil price recovery, will be much more positive. The study forecasts that aggregate GCC GDP will grow by about 20 per cent to more than $ 1 trillion in that year. GCC governments will record a combined budget surplus of about $ 50 billion and the GCC current account will be in surplus by about $ 90 billion.
“The longer-term outlook for the GCC remains positive due to globalisation and secular, global oil market trends,” it said. “The year to come, consequently, is forecast to constitute a short and, potentially, sharp shock to GCC private businesses which will be mitigated by GCC government action and conditioned by the extent to which the region’s abundant private liquidity can be mobilised by the banking and finance system.
The forecasts are based on the assumption that the average price of West Texas Intermediate (WTI) blend of crude oil will be about $ 60 a barrel in 2009 compared with $ 96 a barrel in 2008.
The study expects Opec’s decision to cut total oil production by almost 3 million barrels a day in 2009, from 32.6 million b/d in July 2008, will be effective in reversing the drastic decline in prices experienced since the summer. It forecasts WTI will average $ 75 a barrel in 2010 with global demand growing by almost 1 million b/d as the world economy, led by the US, starts to recover. World oil demand is forecast to fall marginally in 2009.
“Some GCC economies and sectors will be seriously affected by the global economic downturn in 2009 and businesses lacking stable sources of timely finance may struggle to survive,” the study said.
“But the GCC will remain solvent during the year despite the elimination of the record current account and budget surpluses that the region has enjoyed for more than five years. GCC governments are expected to use their savings to maintain capital spending on infrastructure and vital services despite sharp falls in oil revenue. This will help sustain the private sector and encourage further non-oil economic growth,” it said.
