"Projects planned or underway in the GCC totalled $2.7tn," Samba said in its latest ‘GCC chart book’. Project activity in the GCC region remained "robust", although it is now likely to be subjected to review and prioritisation, Samba said.
By Pratap John/Chief Business Reporter
Preparations for the FIFA world cup in Qatar in 2022 and the 2020 Expo in Dubai are generating healthy project activity across the GCC region, Samba Financial Group has said.
"Projects planned or underway in the GCC totalled $2.7tn," Samba said in its latest ‘GCC chart book’.
Project activity in the GCC region remained "robust", although it is now likely to be subjected to review and prioritisation, Samba said.
Available Purchasing Managers' Index (PMI) data point to continued healthy expansion in private sector non-oil activity in Saudi Arabia and the UAE through December, Samba said.
Passenger traffic through GCC airports continued to increase, as did hotel occupancy rates, it said.
According to Samba, the regional banks remained “sound and profitable”.
“There is no evidence of stress in the interbank markets, and domestic credit growth is holding at between 5 and 10%.”
GCC economies have a challenging year in 2015 as oil prices continued to slide, Samba noted.
The governments in the region are looking to factor in oil price assumptions in the $50-70/b range for their budgets, and deficits in most states are expected for 2015, with the exception of Kuwait.
These deficits could be quite large (10-16% of GDP) as some governments initially maintain spending levels, having built up large savings for just such a scenario.
“However, the longer oil prices stay low, the greater the likelihood of cuts in capital spending,” Samba said.
That said, large official savings, together with low government debt levels, and sound banking systems, will help GCC states weather the oil price collapse.
Fiscal deficits will be financed by drawing down savings and perhaps debt issuance, and efforts to maintain state spending will help support non-oil sector growth.
However, cuts in spending will be more pressing in Oman and Bahrain where oil resources and savings are less abundant, and budgets are already in deficit.
This, Samba said may tip both economies into recession.
While the slump in oil prices has dented confidence, available data suggest that this has been relatively contained.
Previously booming stock markets fell back sharply in the last quarter 2014, but have recently stabilised, and CDS spreads on most GCC sovereigns are up only slightly.
Moves in forward exchange rates have been muted and, given still healthy external balances, there seems little threat to GCC dollar exchange rate pegs.
“At around 3%, inflation rates in Saudi, the UAE, Kuwait and Qatar, are relatively high in the context of the current global disinflationary environment, although they appear to be cooling,” Samba said.
“Much of the inflationary pressure stems from the recent sharp rebound in property prices, but these have now started to ease. Year-on-year prices have now turned negative in Dubai, and have slowed markedly in Abu Dhabi, although they continue to rise strongly in Qatar,” Samba said.