Oil price rise boosts GCC recovery prospects

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With the GCC economies now poised to earn an additional $ 16 billion every month due to higher oil prices, policymakers will have more authority and freedom to increase public spending to support economic activity, said the latest study by NCB Capital, the investment arm of Saudi National Commercial Bank. “Higher than previously estimated oil export earnings have shored up confidence in the private sector and increased the chances of an early economic revival,” the study said.

Dr Jarmo T. Kotilaine, Chief Economist of NCB Capital, said the GCC economic recovery depended a great deal on the revival of economic activities in the industrialised and emerging nations because of the impact their prospects will have on the all-important oil price.

The study noted that a spate of measures taken by regional governments to cushion the impact of the credit crunch could prevent a sharp contraction in their economies but was unlikely to spur growth.

“While policymakers have made impressive efforts to promote consumer spending, confidence remains fragile, not least because of the persistent troubles of Dubai and concerns over the financial health of parts of the corporate section in view of recent revelations. These problems have in turn delayed recovery in the credit and equity markets,” Kotilaine said.

Prospects for a sustained recovery were improving, even if they remain vulnerable to swings in sentiment elsewhere given the faster-than-expected turnaround in oil prices, which look likely to average $ 60 per barrel in 2009 and even higher in 2010, NCB Capital said. “The fiscal situation for 2009 already looks much stronger than estimates suggested during the beginning of the year,” it said.

 

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