Financial News

Oil price boost triggers growth for Gulf economies

Gulf economies expect to pile on growth of more than 5% in 2012 while most of the rest of the world languishes in the downturn.

Boosted by buoyant oil prices, the Gulf Co-operation Council members expect to see average economic growth of 5.3% by the end of the year.

Qatar is forecasting a real GDP increase of 7%, but political unrest in Bahrain is expected to limit economic confidence and growth to a more modest 3% to 5%.

The growth predictions are good news for the European Union, which chalks up a quarter of the Gulf’s imports and typically trades in the black with the region.

The GCC expects the trade gap to narrow and inflation to ease with a weaker Euro.

Bahrain (3.3%) and Qatar (2.1%) predict stable inflation, while the United Arab Emirates forecasts 2.4%. Kuwait (4.3%) and Saudi Arabia (5%) expect the cost of living to increase at a faster rate because of salary rises that have triggered a surge in the price of food and rents.

A separate report by the Washington-based Institute for International Finance (IIF) cites banks in the UAE as the strongest financial institutions in the Gulf.

The report says they have the highest capital adequacy but also the highest ratio of non-performing loans to total credit.

“GCC banks remain well capitalised and profitable. The balance sheets of banks in the region have been strengthened as a result of the strong economic performance in recent years and high government participation in banks,” said IIF, which groups scores of major Western banks,” said the report.

“However, issues of governance and moral hazard remain. In recent years, significant improvement has been made in regulation and supervision.”

Banks in Saudi are expected to prosper from infrastructure projects and a potential increase in lending to the retail and SME businesses.

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