In its projections the GFH report maintained that Saudi Arabia’s nominal output to cross the $ 500 billion mark in 2008 with real gross domestic product (GDP) growth to hover above 5 percent.
The GFH third quarter economic report said that the strong economic and investment boom in the GCC region would continue apace for the medium term.
“With oil prices expected to remain in triple digits for the remainder of 2008, and several major capacity expansions in the pipeline across oil and nonoil sectors, the GCC states remain firmly on course for strong, broad-based economic growth for the medium term.
“GCC nominal GDP is forecast to cross the $ 1 trillion milestone for this year to a total expected to reach $ 1.1 trillion. This represents an increase of 36 percent over the 2007 estimate of $ 810 billion and doubled that of just four years ago in 2004, says the GCC Economic Outlook 3Q2008 report.
Average incomes in the region are also surging, with Qatar set to rub shoulders with Luxemburg in 2009, as the two countries with the highest per capita income in the world.
“All of this good news is, however, not without a price,” said Ala’a Al-Yousuf, chief economist at GFH.
“GCC states will have to live with the paradox of 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 challenging times.”
So far, the regional governments response to inflation has come in the form of higher wages, increased subsidies and other cash incentives.
“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, senior economist, at GFH.
GCC-wide crude oil production will increase to 20 million barrels per day by 2010, from about 17.5 million bpd at present; while cement capacity in the region will double to 100 million tons per year by 2010. Similar expansions are on the way in several other industries, including petrochemicals and natural gas.
