Gulf economic growth to slow

Economic growth in the GCC will slow this year as a result of the global financial crisis, the IMF says. Real GDP growth for the region is expected to fall to 3.5 per cent, from 6.8 per cent last year.

“The global economy is going through its most severe economic crisis since the Great Depression,” Masood Ahmed, the director of the IMF’s Middle East and Central Asia department, said at a panel presentation in Dubai.

The IMF projected that a decline in oil prices and production would reduce oil receipts for Middle-Eastern oil-exporting countries by half compared with last year. Oil prices have fallen to nearly 25 per cent of their July highs and are expected to stay relatively low this year as global economic demand weakens. The lower prices would result in a drop of US$300 billion (Dh1.1 trillion) in government revenue, and cause GCC countries to run a current account deficit, the IMF said.

Risks for the world’s economic outlook were “tilted to the downside”, with global growth expected to fall to a near standstill at 0.5 per cent this year, Mr Ahmed said.

Although the GCC was likely to fare better than advanced economies, which he projected would contract by 2 per cent this year, the GCC would still slow significantly, he said.. The IMF has lowered its estimates for world economic growth four times in the past nine months because of the worsening economic crisis, and Mr Ahmed warned that further downward revisions were possible.

Economists have repeatedly cut their estimates for growth rates throughout the region based on an expected continuing decline in regional property prices, low oil prices, and a continued shortage of funding. Standard Chartered Bank recently lowered its estimate for GDP growth in the Emirates this year from 2.7 per cent to 0.5 per cent

A forecast by Raed Safadi, the chief economist for the Government of Dubai, is more in line with the IMF, projecting the economy will slow from a growth rate of between 6 per cent and 8 per cent last year to between 2.5 per cent and 3 per cent this year. Dubai would see a slightly slower but still positive growth rate, he said, assuming oil stayed in the region of $45 to $48 a barrel this year.

“We are being challenged on exports, we are being challenged also on the real estate sector, on construction, and on tourism. All these sectors are under pressure here,” he said.

Mr Safadi said the Dubai economy remained strong, noting that it was issuing more work visas to foreigners than it was cancelling, despite layoffs across the construction, finance and property sectors.

“Net visas issued on a daily basis in January 2009 were on the order of 1,000 a day,” he said.

The number captured the “escapees” who leave the country without formally cancelling their visas, since employers were required to inform the Government if their employees permanently left, Mr Safadi added.

One of the key worries that governments throughout the region faced was a potential rise in protectionist trade policies abroad, said Marios Maratheftis, the regional head of research at Standard Chartered Bank in Dubai.

“Protectionism is a big threat for Dubai because it is an extremely open economy. Its economy is based on trade… so any sort of policy action abroad that could slow trade will have negative implications for Dubai’s economy.”

Nasser Saidi, the chief economist at the Dubai International Financial Centre, said that even though the GCC economies would slow this year, the region was still expected to fare better than most other parts of the world.

The financial crisis was also expected to help to cool the rapid inflation that has plagued GCC economies during the past few years. Inflation rates in the GCC are set to fall from 10.6 per cent last year to 6.3 per cent this year, according to the IMF.

Mr Ahmed said the region’s best chance for defending its economic health in the next few years would be a decision from governments to continue spending at levels comparable to the past few years, even if it meant running a deficit.However, he warned that further declines in global asset prices could hurt regional companies’ balance sheets, which would, in turn, put banks and financial institutions “under stress”.

tpantin@thenational.ae The National

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