Doha: Real GDP growth in the GCC is likely to have slowed from 7.8 percent in 2011 to an estimated 5.7 percent in 2012, according to a report by QNB Group.
This remains a relatively high rate of growth compared with many other countries in the current challenging global economic and financial environment. The non-oil sector has driven growth while oil output has also risen.
In 2012, oil prices remained at historically high levels, boosting government revenue and spending, which, in turn, boosts growth across non-oil industrial and services sectors. Around 22 percent of government spending is capital expenditure, mainly on infrastructure in transport, real estate, education and healthcare sectors. Government spending, therefore, supports non-oil sectors such as construction and utilities.
The remaining 78 percent of government spending is current expenditure, mainly on government wages and other public services. This provides an injection of income into the GCC non-oil economy, driving growth in services and retail trade.
Additionally, non-oil industry has grown strongly as investment in major manufacturing projects, particularly petrochemicals, has boosted output.
Rising oil production was also an important factor driving growth in 2012. Total GCC oil production reached 17.2 million barrels per day (bpd), on average, in the first three quarters of 2012, 6.2 percent higher than in 2011.
Higher oil production came as Opec removed its production quotas for individual countries.
The quotas had initially been put in place in 2009 when oil prices crashed, but were replaced in 2012 with a more relaxed aggregate production target for all Opec members. Opec also ramped up production in 2011-12 to calm oil markets as concerns grew about lower output in countries such as Libya (due to the Arab Spring) and Iran (due to sanctions).
Overall, despite historically high oil prices and rising oil production, strong growth in the non-oil GCC economy has sustained its share in total GDP at around 50 percent in 2012. QNB Group estimates that total nominal GDP in the GCC was $1.56 trillion in 2012, or 2.2 percent of global GDP.
Saudi Arabia is the largest GCC economy, accounting for around 47 percent of the region’s GDP.
The oil sector has underpinned the Saudi economy with production averaging 9.8 million bpd in the first three quarters of 2012, up from an average of 9.3 million in 2011. Real growth was even stronger in the Saudi non-oil sector in 2012 at 7.2 percent. Ongoing major investment projects have supported growth in sectors such as construction, which expanded by 10.3 percent in 2012.
Qatar is the third largest economy in the GCC, accounting for 12 percent of regional GDP. There has been a slowdown in real GDP growth as the state’s rapid liquefied natural gas expansion programme has peaked and further expansion has been put on hold, for the time being.
However, growth is still strong at 6.1 percent in 2012 due to the non-oil sector.
The non-oil industrial and services sectors are estimated to have exhibited strong growth of 10.1 percent and 9.1 percent respectively, according to QNB Group. This compares to just 2.1 percent for the oil and gas sector.
Although oil production is levelling off, non-oil sectors are likely to grow strongly in most countries, supported by rising government expenditure. Budget spending continues to rise across the GCC on the back of strong inflows of hydrocarbons revenue.
For instance, the Saudi budget for 2013 includes an increase in planned spending of 19 percent to $219bn.
In Qatar, major infrastructure projects are beginning to be ramped up to ensure they are completed within a set timeframe to meet FIFA requirements for the 2022 World Cup. Project spending of around $30bn a year is expected in 2013-14 in Qatar.
Although spending is being consolidated in the UAE, private sector investment is likely to compensate as the recovery takes hold. Some new real estate projects are being initiated and old projects revamped.
Strong investment into non-oil industries across the GCC, including production of petrochemicals, fertilisers, steel and aluminium will continue to support non-oil growth.
Therefore, QNB Group expects GDP growth in the GCC growth to stabilise at around 5 percent-6 percent in 2013-14.
The Peninsula
