Business outlook 2009 shows tightened times for GCC

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'We may be past the worst, but we are about to recover soon,' is the viewpoint of Standard Chartered's analysts.

'The outlook for 2009 is bad, but is also not without some positives. Easing policy and falling commodity prices should also offer some short-term relief.'

The World Bank's Global Economic Prospects report points to regional growth in the Middle East slowing from 5.8% in 2008, buoyed by frenetic activity in the first half of the year, to 3.9% in 2009.

The region's growth slowdown will revolve around the low level of oil prices, from highs of $147 a barrel in July 2008 to averaging out at the low $40 mark. On a bullish note, though far lower than 12 months previously, prices of $45 to $50 a barrel will still allow regional governments to continue with all ongoing developments and initiatives without dipping into reserves.

Even if they need to, the GCC states can afford to top up spending from the vast petrodollar wealth accumulated over the past five years, meaning that governments should be able to step in and stave off the worst fall out effects of the greater financial crisis.

Slow down in GDP growth

Growth in the UAE is expected to slow to 2.7% from 4.8% in 2008.

The lack of liquidity currently being felt in the country's economy will begin to normalise by the end of Q1, according to Mario Maratheftis, regional head of research at Standard Chartered, as government initiatives begin to take hold, although the lack of monetary tools will keep growth levels down.

If the Central Bank is successful in bringing credit growth to 10% (from a vastly inflated 49% in mid-2008 prior to the flight of foreign capital) then inflation in the country should fall to 8%, from an official figure of 12%.

Conversely the Saudi Arabian Monetary Agency has been able to make use of the kingdom's monetary initiatives to stabilise the country's liquidity fairly rapidly. Growth predictions for the economy for 2009 therefore stand at 2%, from 2.7% in 2008. This omits current predictions for a 2009 budget deficit of $17.3bn, which means that, although projects will go ahead, the country may have to dip into its - admittedly vast - reserves to complete them.

Qatar will also weather the financial storm better than most. Heavy investment in gas production facilities will yield budget surpluses. The country's GDP growth rate is estimated to grow at 4.5% in 2009, down from 7%, while inflation will stabilise at around 10%.

Lack of Foreign Direct Investment

Foreign Direct Investment from outside the region is likely to continue to slow down to a trickle of Q1 2008 levels, however, meaning that many projects will face delays and cancellations as investor confidence dips. The majority of those that do go forward will be wholly government-backed initiatives, although even these will feel the effects of the financial climate, as witnessed by the recent announcements concerning real estate projects in Dubai.

Many developers will also feel able to put projects out for re-tendering, as a dearth of projects and lowered construction and raw material costs mean that original bid prices now seem vastly over-inflated.

The construction sector in Dubai, which has been particularly hard hit by the financial crisis, will continue to see slow downs well into 2009, with many projects cancelled, as witnessed by the putting on hold of the Trump Towers development on Nakheel's Palm Jumeirah, and developers laying off employees.

This will trickle down into related industries and more job losses are expected in the sector. Financial constraints will also mean that some contractors will have to face longer waits before payment.

All of this should lead to consolidation within the industry, as weaker players get amalgamated by the bigger groups.

Abu Dhabi, Qatar and Saudi Arabia will all see continued growth as projects underway power ahead. Infrastructure developments especially should remain unaffected by the economic situation, as liquidity for project finance will be more readily available. Projects that are still at the drawing board stage may see changes before being rolled out however, as companies switch target markets or investor sectors.

Examples of this can already be seen in the UAE capital, as the city's major players switch from catering for end-user sales to keeping properties under management and targeting the rental market.

Indeed, demand on the ground and supply shortage will keep prices from falling too far in both Abu Dhabi and Doha.