The Gulf Cooperation Council (GCC) member economies are expected to post an average growth rate of 5.3 percent in 2012 while the pace of the global economic recovery remains hesitant and uncertain against the backdrop of mixed indicators, an economic report showed here on Sunday.
In its monthly economic report titled "Global Economic Recovery Remains Hesitant", the Gulf Investment Corporation (GIC) said firm oil prices and continued fiscal expansionary policies have supported robust growth in the GCC during 2012. According to the EIU, real GDP growth in 2012 is expected to reach 5.5 percent for Kuwait, 5.0 percent for Oman, 7.0 percent in Qatar and 5.5 percent for Saudi Arabia.
Continuing political tensions in Bahrain is likely to constrain growth to 3.5 percent. The IMF has recently revised the growth forecast of the UAE to 3.5 percent in 2012. More than 25 percent of the GCC imports originate from the EU and historically the GCC has recorded large deficits with Europe. However, the weakening of the EUR is expected to soften the trade deficit and also reduce imported inflation. Overall, inflation is expected to remain contained in the GCC region, with Bahrain and Qatar forecast to record 2012 rates of 3.3 percent and 2.1 percent respectively.
While UAE is expected to record around 2.4 percent, it is expected to be marginally higher in Kuwait and Saudi Arabia, at 4.3 percent and at 5.0 percent, due to the faster and more widespread wage and salary increases which has triggered substantial increase in food prices and rents. Firm oil prices and improved economic performance have boosted fiscal and trade surpluses, and led to an improvement in accumulated reserves. Consequently, the corpus of the regions SWF are expected to grow to nearly USD 2 trillion by the close of 2012, for an estimated USD 1.6 trillion at present. Dealing with the GCC equity markets, the report said despite some positive surprises for the 1Q earnings season, these markets witnessed a trend-reversal during the month of April, leading to a net decline of -2.08 percent in the S and P GCC index during the month, as renewed fears of the European credit crisis pressured global equities. The 1Q earnings season saw Saudi Banks report positive earnings surprises amidst improved traction in loan growth, a spurt in fee income, and lower provisions, according to the report. Banks in Abu Dhabi witnessed positive momentum, as two of the largest Banks reported robust growth in earnings. While earnings amongst Dubai banks were mixed, the general trend in the UAE appears to be that of positive asset growth and moderating provisions. Though the results for the Petrochemicals sector was mixed, those for two of the largest players, one each in Saudi and Qatar, beat estimates by a reasonable margin. In the UAE, Real Estate majors beat analyst estimates, as property prices sustained positive growth for three consecutive months, project deliveries appeared to accelerate and some companies recorded growth in Lease and Rental income.
The Saudi Arabia's Tadawul index emerged the least-performing index during the month, declining by a net -3.53 percent, as the Insurance and Investment sectors, that had led most of the rally during the previous month, recorded sharp losses.
The losses were triggered partly by indications of reform in the capital markets that could target speculative activity. The heavy-weight Petrochemicals and Banking sectors also edged down sharply.
In the UAE, Abu Dhabi's ADSM and Dubai's DFM indices corrected by -1.93 percent and -1.03 percent respectively. While the Services and Banks sectors were the key laggards in Dubai, it was the Investments and Real Estate sectors in Abu Dhabi that drove the decline. The Real Estate sector in Dubai emerged as the best performing, as the recovery trend appears to be firming after a prolonged period of decline.
Qatar's QE index remained the worst-performing in the GCC, with YTD losses of -0.86 percent, and -0.99 percent for the month, as the Banking and Services sectors led losses. Investors appeared to be unenthused by the 1Q results from Qatar Banks, and the market remained out of favor with foreign investors.
Kuwait Stock Exchange (KSE) Weighted index declined by -0.65 percent, mainly dragged by the Banking sector, and Bahrain's BSE index scraped through with a marginal advance of +0.03 percent, driven by modest gains in the Services sector.
Meanwhile, Oman's MSM 30 index recorded a more convincing gain of +3.14 percent, driven largely by the industry and banks sectors.
Though regional equity markets could gain confidence from the strength in Oil prices during 1Q 2012 that has raised the macro profile for the region, they remain susceptible to swings in sentiment in the global markets, the report added.
It is expected that rising Bank deposits and surplus liquidity will enable Banks in Saudi to sustain lending growth in the near-term. Saudi banks could also benefit from major projects in infrastructure projects, apart from a potential increase in lending to the SME and Retail segments.