JEDDAH – GCC economic growth is set to slow to 3.6 percent in 2013 from 5.4 percent in 2012 as the three-year surge in regional oil production comes to an end. However, on the ground, business conditions are expected to remain solid as governments maintain elevated levels of investment and social spending, which will ultimately support confidence and private sector activity. Geographically, Qatar and Oman are likely to be the region's best performers. But project market activity will also help build or sustain growth momentum in Kuwait and Saudi Arabia. With oil prices average forecast at $100 per barrel will allow most GCC governments to finance higher spending without draining their financial reserves. GCC oil production is projected to fall by 1-2 percent per year over the next two years as Gulf OPEC producers move to reverse some of the big output increases seen since 2010. But there are certain caveats to this forecast. A major global economic downturn could see global oil market fundamentals loosen by more than expected in 2013, pushing oil prices below $100 per barrel for a prolonged period. This would put government fiscal balances under pressure and cause cuts in spending or delays in project execution, weakening economic growth. Over the medium-term, major economic reforms in areas such as the labor market, education, and competition policy are needed to enable the private sector to grow more independently of state support. Such reforms have taken a back seat of late as governments have prioritized measures to boost incomes and jobs. GCC inflation remains low. Weighted consumer price inflation is expected to have averaged 2.4 percent in 2012. Meanwhile, Saudi Arabia's benchmark Tadawul All Share Index rose the most in two weeks, gaining 0.39 percent to close at 7,025.31 points Saturday, led by banks, petrochemicals and telecommunication companies – amid optimism about fourth-quarter earnings and gains in US equities. It was the biggest gain since Jan. 12. Al Rajhi Bank climbed to the highest since Jan. 20. Saudi Basic Industries Corp. (SABIC) advanced the most in more than two weeks, while Saudi Telecom Co. increased the most in a week. Al Rajhi Bank increased 0.7 percent to SR69.5. SABIC rose 0.8 percent to SR93.25, and STC climbed 2.2 percent to SR41.8. “Investors are optimistic after the release of annual preliminary results of companies last week,” Turki Fadaak, head of research and consultancy at Albilad Investment Co., said. “This week will give important indications on how investors will behave toward those results.” — SG
