UAE nominal GDP to plunge 24%, Saudi Arabia 28%

Falling hydrocarbon prices will deal a blow to nominal GDP in the Gulf States this year with falls of 28 per cent in Saudi Arabia and 24 per cent for the UAE and Kuwait, according to new forecasts from investment bank EFG Hermes.

Gas-rich Qatar is set to fair best in this difficult year with nominal GDP down by just four per cent to $113 billion. Bahrain is down eight per cent to $19 billion, while Oman is also less affected with a 14 per cent drop in nominal GDP to $49 billion.

Biggest hurt most

The biggest damage is therefore to the Gulf States’ largest economies. Saudi Arabian nominal GDP will fall from $467 to $339 billion; the UAE from $253 to $191 billion; and Kuwait from $142 to $107 billion.

Business leaders have been somewhat baffled by reports from the International Monetary Fund that the region would fare rather better in the recession than many other parts of the world. It certainly has not felt that way for anybody involved in trade, tourism, travel, retail and banking, let alone construction and real estate this year.

If it seems like the money has dried up in many areas that is probably true. The global financial crisis at the end of last year has magnified the impact of falling government oil revenues by cutting off alternative sources of liquidity at just the time when many countries were getting huge expansion plans underway.

There has been a massive back pedaling to adjust for falling government incomes and the lack of available credit. At the World Economic Forum in Jordan the emirate of Dubai came in for some criticism for a slow reaction to the crisis and for still being in a state of denial, but many projects have slowed down or been suspended or cancelled.

Deep crisis

But it does seem to be the case that few GCC countries have really grasped the true depth of the crisis confronting them. Looking at real GDP figures does not help when the far better guide is the position with nominal GDP.

The good news is that higher hydrocarbon prices could quickly reverse out these big falls in revenues, and even the stock market rally of the past two months has been sufficient to double oil prices. A sustained recovery could therefore mean the type of oil and gas price inflation that would sent Gulf economies back into overdrive.

But the region is not there yet, and oil prices could be vulnerable to a further downshift in the global economic recession. That would sent GCC nominal GDP lower.