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A Short, Sharp Shock: Economic Outlook for the GCC in
2009-10.
A Short, Sharp Shock:
Economic Outlook for the GCC in 2009-10
Forecast
Forecast
• The GCC faces a year of reduced economic
activity that will test GCC government
capabilities and the viability of businesses.
• 2009 is forecast to constitute a short, sharp
shock to GCC private businesses.
• The region as a whole will continue to be
solvent, and is likely to recover quickly once
global economic trends improve.
• A recovery is possible in 2010.
GCC GDP, based on WTI oil price
GCC GDP, based on WTI oil price
• The dollar value of the GCC’s gross domestic
product (GDP) at current prices will probably
contract by about 20 per cent in 2009, MEED
Insight forecasts.
• This is based on the assumption that the price
of West Texas Intermediate (WTI) crude oil will
fall by no more than one-third - to an average of
$60 a barrel - in 2009.
• That figure is down from more than $96 a barrel
in 2008, due to Opec’s decision to cut
production.
Oil production
Oil production
• GCC oil production will be cut by about 10 per
cent to 14.6 million barrels a day (b/d) next
year.
• Oil prices below $60 a barrel cannot be ruled
out. Pessimists believe world oil demand will
fall in 2009 - the first time this has ever been
recorded for a full year.
• If oil averages $40 a barrel this year, the dollar
value of current GDP in the GCC will fall by at
least one-third, and there would be pervasive
budget deficits.
Charts: Oil supply & prices
GCC oil production (m b/d)
f=forecast; b/d=barrels a day. Sources:
Opec; Energy Information Administration;
International Energy Agency; MEED
$ value of GCC GDP at
current prices (% change)
f=forecast
Sources: GCC governments; MEED
Six other factors
Six other factors for GCC economies
1. The volatility of the dollar - to which five GCC
currencies are pegged.
2. The equities crash.
3. The liquidity squeeze.
4. The global real estate crash.
5. The aviation and tourism slump.
6. Lower volumes of world trade.
Quote
“Whichever way the
figures are
manipulated, the
economies of the
GCC are about to be
dealt a bitter blow”
Government spending
Government spending
1. The new worry is that private investment,
which tends to fall with oil prices, will drop
precipitately.
2. Business is therefore relying on governments
to maintain and even increase spending,
particularly in the projects sector.
3. An increase in non-oil spending is anticipated,
based on the assumption that governments will
maintain spending.
Spending plans, by country
Spending plans, by country
1. Saudi Arabia has signalled that it intends to
maintain spending in 2009, despite the oil price
slump.
2. Kuwait has announced a huge increase in
spending.
3. Qatar is also likely to keep spending high.
4. The situation in the UAE is mixed:
• Abu Dhabi has the resources to maintain expenditure.
• Dubai is almost certain to cut investment unless a cash
injection from Abu Dhabi is provided.
2010: A radical improvement
2010: Two radical improvements
1. Opec will act to reverse the price slump:
• Evidenced by Saudi Arabia’s King Abdullah saying in
November 2008 that $75 a barrel was the “right price”.
• Saudi could slash production close to 8 million b/d.
• Other Opec states and Russia will need to take supportive
measures too.
2010: Another radical improvement
2010: Two radical improvements
2. Stimulus to US economy since summer 2008:
• Sharp appreciation of the dollar, which has increased the
purchasing power of US consumers.
• Crash in oil prices: America will spend at least $100bn less
on oil imports in 2009 than in 2008, at $60 a barrel.
• Relief pack gages: Bush’s $700bn Troubled Assets Relief
Programme (TARP) and Obama’s $600bn economy
injection, through capital spending and tax cuts. Between
them, these packages are equivalent to almost 10 per cent
of US GDP.
Light at the end of the tunnel
Light at the end of the tunnel
• Even with a 20 per cent fall in GDP, the GCC
economy will be about the same size, in money
terms, as in 2007.
• Businesses must restructure and downscale to
the scale appropriate in 2007, and wait for the
recovery.
• Governments will have to ensure the GCC
banking system provides finance.
• Governments must reject the conventional
response to oil-price falls - cutting spending.
• This will help young businesses, which could
play a vital long-term role.
Executive summary
Executive summary
• GCC economies will recover quickly in 2010,
after contracting in real and current terms in
2009, due to an expected rebound in oil prices.
• The GCC will remain solvent during 2009,
despite the elimination of current account and
budget surpluses.
• The longer-term outlook remains positive due
to globalisation and oil market trends.
• Some GCC economies, regions and sectors will
be seriously affected; businesses lacking
stable income sources may struggle to survive.
Executive summary continued
Executive summary continued
• GCC governments are expected to use their
savings to maintain capital spending on
infrastructure and vital services.
• This will help sustain the private sector and
encourage further non-oil economic growth.
• 2009 is forecast to constitute a short and,
potentially, sharp shock to private businesses.
• This 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.
Quotes from the full report
Bahrain’s economy has increased in nominal terms by more than
"
150 per cent since 2002"
Qatar exports rose by almost 400 per cent from 2002 to about
"
$57bn"
Kuwait's trade surplus is estimated to have reached a record
"
of almost $60bn in 2008"
"Higher oil prices and production in 2010 will deliver a current account
Oman"
"Saudi Arabia will record a current account deficit of
surplus of up to $2.5bn in
up to $25bn in 2009"
"MEED expects the
million b/d"
UAE will reduce oil production by 10 per cent to 2.3
To order A Short, Sharp Shock
Order the full MEED Insight report, A Short, Sharp Shock:
Economic Outlook for the GCC in 2009-10, for $2,500.
Download the order form (PDF)
About us
About MEED Insight
MEED Insight offers Middle
East research reports and indepth, tailored analysis. For
more information, contact
[email protected] or visit
www.meed.com/insight.
About the author
The author of the report is
Edmund O’Sullivan. Read his
weekly Last Word columns.
January 2009
A
Short,Insight
Sharp Shock:
MEED
Economic Outlook for the GCC in 2009-10
MEED Insight - www.meed.com/insight