Prospects for the GCC economies beyond 2009 (page 1 of 2)

Imagine, 2010 is just around the corner, and nobody really takes any notice of it. Once described as the threshold to a high-tech and prosperous future, the coming 12 months look more like an ongoing repair session for the global economy.

"The West account for two thirds of the world economy, which is $61 trillion in size", writes Gerard Lyons, Chief Economist at Standard Chartered Bank in London in the "2010: The Year ahead"-report. "If the West does not boom, the world will not boom. And the West is not going to boom in 2010."

This is why any projection for the countries of the Gulf Cooperation Council (GCC) must be examined carefully. From an analyst's perspective, the GCC has rarely faced a year-end with a bigger question mark than now.

In the light of the Dubai World debt crisis, a sober analysis of the status quo and any potential recovery is even harder to do. In its regional economic outlook from October 2009, the IMF raised its growth forecast for all six GCC member states. "We clearly have to wait and see how the negotiations in relation to the debt restructuring will develop", Dr. Heiko Hesse, Economist Middle East and Central Asia Department at the IMF told AMEinfo.com.

His view must be seen as representative, as most economists and analysts are rather hesitant to judge the impact of the Dubai World debt case on the GCC economy. Most local and foreign banks even issued an embargo on statements related to Dubai World and the ongoing restructuring debate.

Continued stimulus packages

Taking in account the measures which have been launched so far against the effects of the financial crisis, however, there is a broad consensus that the GCC economies will continue to struggle with it in 2010. It is true that GCC powerhouse Saudi Arabia is not as affected by the crisis as the UAE and Dubai in particular are.

Its $127bn fiscal stimulus programme in 2009 saved the country from a hard fall. This triggered Standard and Poor's to affirm KSA's rating of 'AA-/A-1 +' with a stable outlook. New regulatory initiatives to liberalise the insurance industry and the real estate sector were also launched. "in KSA, we expect GDP growth to reach 3.0% in 2010, following a 1.0% contraction in 2009", says Shady Shaher, Economist MENA at Standard Chartered Bank in Dubai.

That is why Adnan Yusif, CEO of Islamic bank Al Baraka, thinks that stimulus packages have to continue. Yusif, who also heads the Union of Arab Banks, told AMEinfo.com "that more capital injections are needed until mid-2010, otherwise the green shots of recovery in 2009 will remain a one-time effect."

Diversification is the key for sustainable growth

Regardless of the uncertainty related to the Dubai World case, other figures are based on facts. The drop in oil prices had a deep impact on the financial capabilities of the GCC. According the IMF's Regional Economic Outlook Middle East and Central Asia from October 2009, the decline in oil prices, combined with an expansionary fiscal stance, is leading to a substantial drop in current account surpluses for the region's oil exporters from $280bn in 2008 to around $50bn.