Oman, Bahrain growth outlook down on unrest

Reuters The economies of Bahrain and Oman will grow much slower this year than previously expected after weeks of civil unrest in the Middle East, a Reuters poll found.

Analysts have chopped their forecasts since revolts against ruling governments and economic hardships began raging through the Arab world, disrupting businesses and triggering capital outflows.

Bahraini forces cracked down on protesters on Wednesday in an attempt to quell unrest that has drawn in troops from neighbour Saudi Arabia and comes after uprisings toppled the leaders of Egypt and Tunisia.

But robust oil prices above $100 per barrel will benefit the world’s top crude exporting region, boosting budget surpluses for most governments this year despite high social spending, a survey of 16 economists polled between March 1 to 16 showed.

‘The challenges come from lower consumer and investor confidence and a potential stalling of private sector activity and investment,’ said Andrew Gilmour, senior economist at Samba Financial Group in London.

‘Region wide public sector support should be robust with wealthier states helping out Bahrain and Oman. This, combined with higher oil output, should help maintain regional growth,’ he said.

Oman and Bahrain, getting $20 billion in aid from wealthier Gulf neighbours, are now expected to see their economies grow by 4.1 per cent and 3.4 per cent respectively this year, down from 4.6 per cent and 4.2 per cent in a December survey.

But oil giant Saudi Arabia’s economy is seen growing by 4.5 per cent this year, slightly faster than previously thought, while Qatar’s, spared from public protests so far, is tipped to grow at 15.8 per cent - one of the best performers globally.

Analysts also said that the unrest in the region could trigger significant capital outflows from the Gulf in the short term and that governments would increase public spending in the coming months in order to calm or prevent popular unrest.

However, most countries were heading into larger fiscal surpluses than seen in December thanks to strong crude with Saudi Arabia seen accumulating a surplus of 7.0 per cent of gross domestic product, up from the previously forecast 4.1 per cent.

The kingdom plans to spend an estimated $37 billion to calm social tensions, saying it would partly use its reserves, while the United Arab Emirates said it will invest $1.6 billion to improve infrastructure in its less developed regions.

Additional budget spending combined with high global commodity prices are seen boosting inflation in a number of Gulf countries this year - to 5.6 per cent in Saudi Arabia, up from 5.0 per cent forecast in December.

‘The rise in global commodities and especially food prices will add pressure to inflation,’ said Paul Gamble, head of research at Jadwa Investment.

‘We will see quite a bit more government spending, and that has the potential to filter through to greater consumer spending which could add a little bit to inflationary pressures. The food price pressure is already kicking in.’

But the UAE, recovering from Dubai’s debt crisis, will see the slowest consumer price growth in the Gulf at 2.5 per cent, far below record highs above 10 per cent hit in most Gulf nations in 2008 during a construction and investment boom