After averaging at 4.4 per cent growth in 2010, the GCC economy will surge to 4.7 per cent in 2011, following just 0.3 per cent growth in 2009, the Washington-based organisation said in Dubai on Monday.
Dr George Abed, IIF Senior Counsellor and Director of the Middle East-Africa Department, said higher oil prices, sound macroeconomic policies, and the normalisation of global trade and capital flows underpinned the robust GCC recovery.
The IIF forecast a rebound in oil production of around three per cent in Kuwait, Saudi Arabia, and the UAE, and said GCC’s revenue from oil and gas would rise from $ 323 billion in 2009 to $ 419 billion in 2010 and to $ 457 billion in 2011.
“Accordingly, we anticipate that the net foreign assets of GCC countries will rise from $ 1.049 trillion at the end-2009 to $ 1.340 trillion by end-2011, equivalent to 122 per cent of the regional gross domestic product, or GDP,” he said.
The IIF’s GCC growth figures were in line with a World Bank report, also announced on Monday, which said growth in the GCC would be 4.4 per cent in 2010.
However, Dr Abed cautioned that the United Arab Emirate’s economic recovery would be sluggish for the near-term.
The UAE’s growth is dependent on a resolution of the Dubai World debt situation, “a significant strengthening the federation and greater support from Abu Dhabi” and more transparency, said Dr Abed.
“The UAE can achieve a growth of 2.7 per cent in 2010 and Dubai could avoid a further drop and register a small growth of 0.8 per cent in 2010 if those reforms are implemented,” he said at a media briefing at the Dubai International Financial Centre on Monday.
IIF Senior Economist for the Middle East and Africa Dr Garbis Iradian said in the absence of such reforms, the UAE’s non-oil real GDP would be growing only by 1.8 per cent while Dubai could face 0.5 per cent contraction this year.
The forecast for a contraction in Dubai growth is linked to the “continued retrenchment in construction and real estate sectors,” which accounts for nearly a quarter of the emirate’s GDP, said Dr Iradian.
The IIF said the impact of Dubai World’s debt restructuring on domestic UAE banks is likely to remain manageable. The average nonperforming loans (NPLs) that doubled in the GCC in 2009 would continue to rise in 2010 and 2011.
However, the rate of NPLs are low by international standards and average capital adequacy among GCC banks is quite high, especially in the UAE where it stood at 20.3 per cent at the end of March this year, thanks to the UAE government’s injection of $ 16 billion into the system, Dr Iradian said.
“Nonetheless, the restructuring of DW’s debt will have a moderate impact on domestic liquidity and economic activity,” he said.
“Some banks with significant exposure would need to strengthen capital buffers.”
The report expected the combined NPLs by the UAE’s 24 national banks and 28 foreign units to soar from around 4.3 per cent in 2009 to nearly nine per cent of total loans in 2010.
The IIF’s baseline GCC projections assume modest global economic recovery (growth of 3.3 per cent) and average oil prices of $ 75 per barrel in 2010 and $ 80 per barrel in 2011.
It is also assumed that the fallout from Dubai’s debt problems will likely have a measurable but limited impact on growth prospects in the United Arab Emirates, less so for the GCC region.
“However, investment flows to the region may slow, the cost of funding will be higher, and banks are likely to adopt a more cautious and discriminating approach to lending going forward,” he added.
