Gulf May Slow After ‘Exaggerated’ Spending, CEBR SaysGlen Carey
Persian Gulf economies are set to slow this year after government spending “exaggerated the pace of growth” during the past two years, the Centre for Economics and Business Research Ltd. said.
Growth in the oil-producing Gulf region will ease to 4.8 percent from 6 percent in 2012, CEBR said today in a report published with the Institute of Chartered Accountants in England and Wales. That compares with a growth forecast of 3.9 percent for the entire Middle East this year, the London-based center said.
“In 2013, the Middle East is set to slow from the robust expansion experienced over the last two years,” CEBR said. “The dramatic increase in government spending over the last two years exaggerated the pace of growth across the GCC countries in particular, so the rate of change in expansion is likely to ease in 2013.”
The economy of Saudi Arabia, which derives about 90 percent of revenue from oil sales and is the Arab world’s biggest, grew an estimated 6.8 percent in 2012 as King Abdullah allocated oil wealth for projects to expand airports, build roads and real estate. This year the economy will ease to 5.9 percent, CEBR said.
The Kuwaiti economy will slow to 4.2 percent from 6.8 percent last year, CEBR forecasts. Growth in the United Arab Emirates, the Middle East’s second biggest economy, will ease to 3.6 percent from 4.3 percent last year, it said.
Persian Gulf oil producers have used revenue from oil sales to finance their spending requirements. Saudi Arabia raised its 2013 expenditure target by almost a fifth to a record 820 billion riyals ($219 billion), the Finance Ministry said in a statement on its website on Dec. 29.
Saudi crude oil output fell in December to a 19-month low as the kingdom exported 7.06 million barrels of crude a day, the least since September 2011, the Joint Organisations Data Initiative said on Feb. 17. The kingdom, which pumped 9.95 million barrels a day on average in 2012, is likely to produce 4.5 percent less this year, Riyadh-based Samba Financial Group said in a January report.
“The large expansion in public spending provides a stimulus in the short term, but questions remain over its long-run sustainability,” CEBR said. “The risk remains that if shale oil and gas really take off as a fuel source in the West and beyond, demand for crude oil could slip, and Middle Eastern countries could have to cut their budgets very quickly.”