High oil production and prices will still underpin further robust non-oil growth, said the ratings agency in its newly-published quarterly GCC Sovereign Credit Overview.
Oil market trends remain supportive for the region, though less so than in 2012. As a result of tight fundamentals and generally improving sentiment about the global economy Fitch has raised its Brent oil price forecast to $105 per barrel for 2013. However, Saudi Arabia has sharply cut back oil production so far this year and with other regional producers at close to capacity the oil sector will be a drag on overall economic growth across GCC sovereigns in 2013.
Bumper oil revenue will allow GCC governments to impart further stimulus while strengthening their balance sheets. 2013 budgets for Saudi Arabia and Oman are expansionary and buoyant spending will be bolstered by high levels of business and consumer confidence and healthy growth in bank lending. Non-oil growth in the UAE is picking up, led by Dubai, where indicators of trade, tourism and logistics are close to record highs.
Political tensions have eased in Kuwait and signs that the new government is more aggressively implementing capital spending and economic reforms are lifting sentiment. New reconciliation talks have begun in Bahrain, but low-level disturbances continue and political uncertainty is likely to linger. We therefore expect that the rebound in the economy in 2012 will not be sustained.
Fitch continues to forecast fiscal and current account surpluses for all GCC sovereigns except Bahrain, which will allow a further improvement in sovereign balance sheets and external positions. Inflation is set to remain under control, as emerging domestically-driven price pressures are likely to be balanced by a subdued global inflationary environment.
In Fitch’s view the region’s long-standing exchange rate pegs to the US dollar will remain in place over the medium term. Although interest rates, which shadow those in the US, appear misaligned with the region’s requirements, confidence in the authorities’ commitment to the pegs means they are unlikely to come under pressure. Fitch does not expect a planned regional single currency to materialise, owing to the absence of both strong political support and significant economic benefits.
