Gulf oil revenues are set to cross $600 billion annually in the next two years though the countries in the region will have to live with high inflation rates, according to a new report. The strong economic and investment boom in the GCC region will also continue apace for the medium term, an economic research report issued by Gulf Finance House (GFH) on Thursday said. With oil prices expected to remain in triple digits for the remainder of 2008, and several major capacity expansions in the pipeline across oil and non-oil sectors, the GCC states remain firmly on course for strong, broad-based economic growth for the medium term. Oil production will rise to 20 million barrels per day (bpd) by 2010 from 17.5 million currently, pushing oil revenues beyond the $600-billion mark, according to the Bahrain-based investment bank Gulf Finance House's (GFH) Gulf Cooperation Council (GCC) Economic Outlook for the third quarter of 2008. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) comprise the GCC. Apart from the increased oil output, cement production in the region would also double to 100 million tons per year by 2010, the report said. Petrochemicals and natural gas output are also likely to increase. Stating that GCC countries are set firmly on course for strong economic growth in the medium term, the report said government expenditure in the region would reach $300 billion in 2008. Private sector projects currently under way in the region are worth around $2 trillion. “Banks will continue to enjoy strong growth in business volumes due to robust growth in consumption and investment, relatively low financial leverage of corporate GCC, high demand for Islamic financial products, access to stable deposits and cheap funding costs,” a GFH statement issued from Manama said. The region's nominal gross domestic product (GDP) reflecting current prices, would rise 36 percent to $1.1 trillion in 2008 from $810 billion in 2007, double that of the 2004 figure. GFH chief economist Ala'a Al-Yousuf said people in the region would have to “live with the paradox of low single-digit interest rates and high double-digit inflation rates.” Inflation rates in the UAE, Oman and Qatar are hovering around 15-16 percent while those in Kuwait and Saudi Arabia are over 10 percent. Only Bahrain has a low inflation rate of about five percent. “In our opinion, the GCC is entering a phase of loose monetary-fiscal policy spiral, which, together with a wage-inflation spiral, have trapped the region between two impossible trinities,” senior economist at GFH Hany Genena said. Moreover, GCC nominal gross domestic product (GDP) is forecast to cross the $1 trillion milestone for this year to a total expected to reach $1.1 trillion. This represents an increase of 36 percent over the 2007 estimate of $810 billion and double that of just four years ago in 2004, said the third quarter GCC Economic Outlook for 2008 report. Average incomes in the region are also surging, with Qatar set to rub shoulders with Luxemburg in 2009, as the two countries with the highest per capita income in the world. The GFH report further said that Gulf states will allocate about 25 percent more cash this year for public spending as their oil revenues cross $600 billion. Wealth in the world's biggest oil-exporting region has galloped as oil prices surged more than six-fold in as many years, giving Gulf governments windfalls to spend on economic diversification and social programs. Total government expenditures in Saudi Arabia and five other regional oil producers should hit about $300 billion this year, compared with an estimated $240 billion last year, Gulf Finance said in a research note. About $2 trillion worth of private sector projects are also under construction or planned in the oil-producing region, the Bahraini Islamic investment bank added. The combined size of Gulf states' nominal gross domestic product will surge past $1 trillion this year on an oil price windfall, a Reuters poll showed this week. The region's total crude export revenues, including Qatar's natural gas exports, will surge 65 percent to $660 billion this year, the poll of 14 economists showed. But expansionary state spending in the Gulf is one of the factors stoking inflation at record and near-record peaks, and currency pegs to the dollar in most Gulf states have constrained their ability to fight it. Dollar pegs have forced Gulf states to track US interest rate cuts. As the governments rake in oil revenues, meanwhile, the populations are also getting wealthier. Per-capita income in Qatar, the world's top exporter of liquefied natural gas, is forecast to surge 23 percent this year to $96,484 before touching $110,632 next year - second only to Luxembourg - Gulf Finance said. The IMF projects Luxembourg's per-capita income at $117,231 this year and $122,394 next year, it added. __
