In its quarterly report on the credit overview of GCC countries, Fitch Ratings forecasts that economic growth in the GCC would remain solid in 2013, yet comparatively slower than that seen in previous years due to a moderation of the increase of oil production. Yet, sustained high oil prices and output would provide a supportive backdrop for another year of strong non-oil growth.
According to the agency, GCC countries will still be heavily impacted by global oil prices which would average US$ 100 per barrel in 2013 despite the relatively weaker demand outlook. As most GCC exporters aside from Saudi Arabia are operating at close to capacity, there is little scope to raise output after the hikes over 2011 and 2012.
Fitch Ratings indicated that many governments within the GCC would still inject their substantial oil revenues to stimulate their economies. According to the same source, Qatar would remain the fastest growing of all GCC sovereigns in 2013, driven by the government's significant capital investment program. Growth will also be strong where fiscal stimulus is combined with healthy rates of bank lending and buoyant consumer and business confidence, as is the case in Saudi Arabia and Oman.
With regards to Bahrain, Fitch sees that political uncertainty is still clouding the country’s outlook despite the higher government spending that boosted real growth in 2012. This is also the case of Kuwait which might be impacted by adverse political developments. Although there is little fiscal impulse in the UAE, the non-oil economy will pick-up owing to a renewed influx of businesses and residents.
For all GCC sovereigns apart from Bahrain, Fitch foresees that fiscal and current account surpluses would further strengthen sovereign balance sheets and external positions. The agency expects the benign global inflationary environment to be sufficient to offset most domestically-driven price pressures and keep inflation in the region relatively subdued.
The main economic risks to the outlook for the region are external. The US fiscal cliff poses the largest short-term risk. A slowdown in China and an intensification of the Euro zone crisis would also hurt the region. In addition, the GCC remains vulnerable to swings in oil prices. Given the fiscal policy space in most of the GCC, Fitch anticipates that these risks should be manageable in 2013.
Mena Weekly Monitor – Bank Audi Research