Inflation 'to mar Gulf economic boom'

A surge in crude prices and investment spending is expected to boost the economies of Gulf oil producers in 2008 but the strong performance will be marred by high inflation, said the United Nations.

From around 5.2 per cent in 2007, the combined gross domestic product of the six-nation Gulf Co-operation Council (GCC) is projected to pick up by nearly 5.5 per cent this year but inflation will remain high, the UN Economist and Social Commission for Western Asia (ESCWA) said in a study, obtained yesterday.

Over the past couple of years, the UAE and Qatar have recorded the highest GDP growth in the 27-year-old Gulf economic, defence and political alliance but they have also been the main victim of inflation.

"In 2008, GDP growth in the GCC is expected to average around 5.5 per cent, supported by continuing high oil revenues, increased public spending and a positive investment climate," said the Beirut-based ESCWA, which groups the GCC and other countries in the Middle East.

"However, the favourable macro-economic picture has increasingly been clouded by rising inflation rates, which are expected to remain high in 2008. As a result, local purchasing power has been eroded and the pressure on monetary authorities to reconsider exchange rate regimes increased. And following a decade of high price stability, inflation rates in the GCC countries started to rise in 2004, beginning primarily in the fast-growing economies of the UAE and Qatar," it said.

Its figures showed the UAE and Qatar had the highest inflation rates in the GCC during 2006 and 2007, standing in the UAE at nearly 9.3 per cent in 2006 and 9.8 per cent in 2007. In Qatar, it stood at 11.8 and 12.8 per cent.

But the report said the rate could really be far higher on the grounds several spending factors are not included in the computation of the consumer price index in the two countries. It gave no figures but the UAE last week estimated its 2007 inflation rate at 11.1 per cent while Qatar put it at nearly 14 per cent.

ESCWA put inflation at 4.6 per cent in the Kingdom of Saudi Arabia in 2007, nearly 6.3 per cent in Oman, 5.6 per cent in Kuwait, and 4.8 per cent in Bahrain.

It attributed the surge in inflation in the GCC to abundant liquidity, strong consumption and investment demand, high government spending, soaring food prices and rents in member states, and a constant weakening of the US dollar. But it noted that high oil prices have allied with a surge in public and private spending to give a strong push to the GCC economies after several years of slow growth mainly because of low crude prices.

"The economic recovery that began in 2003 continued during 2007, albeit at a slower pace than in previous years… average real GDP growth in the GCC is slowed from 5.9 per cent in 2006 to 5.2 per cent in 2007," it said.

"But average growth in 2008 is expected to accelerate to 5.5 per cent in the light of projected high oil prices and further increases in Government spending. Just as in 2007, the UAE and Qatar are expected to record the highest growth rates."

A breakdown showed growth in 2007 stood at 8.3 per cent in the UAE, 8.2 per cent in Qatar, 6.3 per cent in Bahrain, 5.7 per cent in Oman, around five per cent in Kuwait and 3.5 per cent in Saudi Arabia. In 2008, Qatar is expected to be star performer, with growth of around 9.7 per cent. It is projected at 7.4 per cent in the UAE, 6.1 per cent in Bahrain, 5.6 per cent in Oman, 5.4 per cent in Kuwait, and four per cent in Saudi Arabia.

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