The widely regarded Economist Intelligence Unit is forecasting a strong upturn in GCC economies next year thanks to continued healthy oil price levels and the stimulus of economic reform.
Overall, the outlook is for around 4% growth in the region with Qatar topping the charts at 5.5%. This compares with an anemic figure of nearer 2% for 2002. Why the optimism about this region?
After all the prospects of an imminent Third Gulf War, and continued violence in Palestine, do not make this feel a time for great optimism about the future.
It’s the oil price, of course. At $27 today and seemingly heading higher this autumn, there is a warm glow in the treasuries of the Gulf States. A Gulf War would only push the oil price higher, and Arab states are in belligerent mood and not likely to rush to pump more oil in the event of a supply side crisis.
This is not quite 1974 all over again when a quadrupling of oil prices crashed Western stock markets. But the experience of the Gulf War of 1991 suggests that a spike in oil prices is on the cards. Certainly that is how oil traders see it, and they set the price.
So the prospects for business in the GCC are rather rosy at a time when Western economies are beginning to look decidedly sick. Even in the healthiest, the UK, is suffering widespread job cuts, industrial output is falling and only a massively overpriced housing sector is keeping the economy afloat.
For the GCC the ascendancy of the economic reformers, who are only now getting around to legal regulation, capital market reform and privatization, is also very good news. Oil revenues bring the possibility of painless economic reform with long lasting benefits to productivity.
Perhaps that is why the EIU is so excited. Just look at how the Dubai real estate sector is taking off with ownership open to nationals and foreigners. This is tremendously good for the local economy. It keeps savings in the country, and home owners tend to be big spenders.
For economic modernization will maximize the benefits that oil revenue brings to GCC economies. That will boost GDP to even higher levels, and over time be far more important than a temporary hike in oil prices.
Monday, August 26- 2002 @ 14:09 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.