The economies of Gulf oil producers are expected to stage a full recovery in 2010 as they will net more petrodollars from high prices and an increase in their oil output resulting from global recovery, according to report a released by the Institute of International Finance (IIF).

The study noted that oil prices could average nearly US$ 72 a barrel in 2010 compared with nearly US$ 62 in 2009 while the GCC economies could trail recovering global economies. The report showed the improvement in oil export revenues would boost the GCC’s fiscal and current account surpluses.
The IIF’s baseline projection for 2010 for the GCC assumes modest global recovery, growth of 2.6%, average oil prices of US$ 72 per barrel, and that the impact of the troubled family-affiliated conglomerates on banks is contained. But it noted that the recovery of the global economy in 2010 is expected to be sluggish, particularly in advanced economies, as financial systems remain impaired, and households will rebuild savings.
IIF went on to note that despite recent signs of the onset of recovery in many parts of the world, the global economy is still expected to contract by 2.5% in 2009. By later this year, the combination of easing monetary and expansionary fiscal policies should begin to yield some results, and the forecast remains for a return to modest global growth in 2010. The report further stated that if advanced economies move out of recession and global demand for oil recovers, a rebound in oil production of around 3% in Kuwait, Saudi Arabia and the UAE will be reflected in an overall real GDP growth rate of 3.5% in these countries. The report expected Qatar’s nominal growth rate to exceed 30%, driven by a 60% rise in gas production.
As per the report, GCC activity in the non-hydrocarbons sector will continue to be supported by government spending on infrastructure and social sectors. While the private sector will recover modestly, it will grow at a much slower pace compared to recent years. Past experience shows that private investment tends to recover slowly from downturns, especially those that involve financial stress.
Turning to inflation, the IIF expected the rate to decline to two per cent this year before rising slightly to three per cent in 2010. It said cost-push pressures from a more than expected weakening of the dollar against major currencies over the next few months, and a modest recovery in nonfuel commodity prices would add limited inflationary pressures next year. It showed that weak domestic demand, the correction in housing-related prices and the fall in global commodity prices have brought down the 12-month inflation rate from over 13% in July 2008 to only 3% in July 2009. Continued slackening in the GCC economies will dampen domestically driven inflation pressures in 2010.