Quarterly 12 January 2012
Khatija Haque
Senior Economist
+971 4 230 7801
Research from Emirates NBD
GCC Outlook 2012
Regional growth is likely to slow to 3.9% in 2012 from an estimated 7.3% in
2011, as the substantial boost from higher oil production last year is now in the
base. Government spending should underpin growth in the face of weaker external
demand.
The regional inflation outlook is benign as easing food prices and a strong USD
should help to keep a lid on imported inflation, and housing costs are likely to
remain contained particularly in the UAE, Bahrain and Qatar.
In the UAE, we expect growth to slow to 2.5% in 2012 from an estimated 4.6%
in 2011. The private sector is particularly vulnerable to weaker global growth, and
activity in Q4 2011 has already been affected by external developments. Private
sector credit growth has been relatively weak in 2011 and is expected to remain so
this year.
Saudi Arabia’s substantial public spending will be the anchor for expected
growth of 3.8% in 2012 in our view, as oil production is likely to ease. Inflation is
high by regional standards at just under 5% and is expected to moderate only
slightly in 2012. Saudi Arabia’s high foreign reserves and low debt levels provide a
substantial cushion, and would allow fiscal policy to remain growth-supportive even
in the event of a negative oil price shock.
Qatar’s GDP growth is expected to slow sharply to 7.1% in 2012, from 17.9%
last year, as the decade long expansion of LNG capacity comes to an end.
However, an ambitious multi-year infrastructure investment program will support
growth in the non-hydrocarbon sector.
Government spending is likely to support GDP growth in both Oman and
Bahrain in 2012, while Kuwait is unlikely to push ahead with its planned investment
programs until after a new government is formed. Elections in Kuwait are
scheduled for 2 February.
Real GDP growth in the GCC
* Weighted by nominal GDP
Source: Haver Analytics, Emirates NBD Research
-10
-5
0
5
10
15
20
Saudi Arabia
UAE Qatar Kuwait Oman Bahrain GCC average*
%
2009 2010 2011f 2012f
Page 2
Research from Emirates NBD
Contents
Overview ...................................................................................................................................... Page 3
UAE ............................................................................................................................................... Page 5
Saudi Arabia ............................................................................................................................... Page 8
Qatar .......................................................................................................................................... Page 10
Kuwait ....................................................................................................................................... Page 12
Oman ......................................................................................................................................... Page 13
Bahrain ...................................................................................................................................... Page 14
Key Economic Forecasts..................................................................................................... Page 15
Page 3
Research from Emirates NBD
Overview
The GCC economies proved relatively resilient to global and
regional shocks in 2011, largely thanks to oil. Higher oil
production (up 10.5% according to Bloomberg estimates)
underpinned GDP growth of 7.3% according to our estimates. This
was significantly higher than growth in most developed countries
and indeed, many emerging markets as well. Substantial
increases in public spending in the aftermath of the Arab Spring
also contributed to the strong growth performance of GCC
economies.
Oil sector likely to be a drag on growth in 2012
Notwithstanding OPEC’s recent quota increase, we do not
expect the boost to growth from oil to be sustained in 2012 for
several reasons: global growth forecasts have been downgraded,
suggesting weaker demand for oil; output from Libya is likely to
rise sharply as that country recovers from its civil war; and the
2011 increase in GCC production is now in the base. As the
‘swing producer’ in OPEC, we expect Saudi Arabia’s oil output to
contract in 2012 providing a strong headwind to overall GDP
growth in the Kingdom next year. We expect UAE and Kuwait to
maintain production around current levels, so any real GDP growth
in 2012 will need to come from non-oil sectors.
Consensus forecasts (Bloomberg, 10 January 2012) put the
average oil price at USD 104.5 per barrel (pb) in 2012, rising to
USD 113.1 pb in 2013. The OPEC reference price averaged USD
107.5 per barrel last year. We use the average consensus oil price
forecasts as inputs to our GCC models.
Fiscal policy is likely to be growth supportive
As has been the case to varying degrees across the region in
2011, government spending is likely to underpin growth in the non-
oil economy this year.
Saudi Arabia has been the most aggressive with its spending
since the financial crisis, drawing on its substantial cash
reserves to finance investment and infrastructure spending.
Indeed, total expenditure grew 23% y/y in 2011 and was almost
40% over the original budget. A substantial amount of the
unbudgeted spending was in the form of public sector wage
increases & bonuses, subsidies and other social benefits
announced as part of USD 124bn package in February and March
2011, at the height of Arab Spring unrest. Although the official
2012 budget projects a decline in both revenue and spending, we
expect total expenditure in 2012 will be similar to 2011 at SAR
800bn, supporting overall GDP growth of 3.8% in the Kingdom.
Elsewhere in the GCC, government spending rose between
6% and 30% y/y in 2011, according to our estimates. We
expect spending to rise a further 6-10% in 2012 (excluding KSA),
as governments push ahead with longer term infrastructure
investment as well as boosting current spending through job
creation and subsidies. Despite the higher spending, we expect
the GCC to run a fiscal surplus of 9% of GDP in 2012, down
from 11.5% in 2011.
Consensus oil price forecasts
Source: Bloomberg (10 January 2012), Emirates NBD Research
GCC: Oil production
Source: Bloomberg, Emirates NBD Research
GCC: Expenditure and budget balance*
Source: Haver Analytics, Emirates NBD Research
*Regional average, weighted by nominal GDP
2
3
4
5
6
13
14
15
16
17
Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
mn
ba
rre
ls p
er
da
y
GCC ex Oman and Bahrain (lhs)
Libya + Iraq (rhs)
-10
0
10
20
30
40
50
2008 2009 2010 2011e 2012f
% G
DP
Govt expenditure Budget balance
Page 4
Research from Emirates NBD
Private sector is vulnerable to global developments, to varying degrees
Of the larger Gulf economies, the UAE is probably more
vulnerable to global economic developments than Saudi
Arabia and Qatar. This is due to the UAE’s openness, its
diversified economy and also its relatively high debt levels and
reliance on global capital markets for financing. We believe the
UAE is particularly vulnerable to a slowdown in Asia, as China and
India are key trade partners, not just in terms of the value of goods
traded, but the volume of trade. This is a key driver for the UAE’s
transport & logistics sectors.
PMI data for the UAE suggests that the slowdown in global
growth has already had an impact on private sector activity,
with the PMI readings declining sharply from Q2 11. Weak private
sector credit growth has been another constraint to private sector
activity in the UAE. Private credit growth in Kuwait has also been
in the low single digits, as banks grapple with exposure to real
estate and investment funds.
Private sector credit growth has been much more robust in
Qatar, where it approached 20% by end-2011, while Saudi Arabia,
Oman and even Bahrain saw double digit growth in lending to the
private sector. This reflects a combination of higher liquidity in the
banking system and stronger bank balance sheets in those
countries.
GCC still likely to see solid growth in 2012
We expect to see real GDP growth slow across five of the six GCC
states, the exception being Bahrain which saw 2011 growth slow
sharply due to the uprisings in Q1. We forecast average growth
for the region at 3.9% in 2012, down from an estimated 7.3% in
2011.
Upside risks to this forecast include flat oil production in Saudi
Arabia (rather than the decline in oil output that we have projected)
or indeed higher oil output in the UAE and Kuwait in 2012; and
better than expected growth in the US and/or Asia. Downside risks
include a worse than expected Eurozone recession and/or slower
than expected growth in Asia.
Inflation likely to remain contained
We estimate inflation averaged 3.3% across the GCC this
year, with Bahrain and the UAE at the lower end of the range and
Saudi Arabia and Kuwait at the higher end. Looking ahead to
2012, we expect inflation to rise only slightly to an average 3.5%,
partly due to a low base but also due to higher services prices as
wage increases and other transfers boost household incomes.
On the flip side, global food prices declined 3.7% in Jan-Nov
2011 and this is likely to feed through to domestic inflation
through 2012. It typically takes 6-9 months for changes in global
food prices to feed through to GCC inflation indices. A stronger
USD is also likely to keep imported inflation in check. Housing
costs are also likely to remain low, particularly in the UAE, Qatar
and Bahrain.
GCC: Private sector credit growth*
Source: Haver Analytics, Emirates NBD Research
GCC: GDP growth*
Source: Haver Analytics, Emirates NBD Research
UN food price index
Source: Bloomberg, Emirates NBD Research
*Regional average, weighted by nominal GDP
0
5
10
15
20
25
30
35
2008 2009 2010 2011e 2012f
% D
ec/ D
ec
6.1
0.3
4.7
7.3
3.9
0
2
4
6
8
2008 2009 2010 2011e 2012f
% y
/y
0
10
20
30
40
50
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
Page 5
Research from Emirates NBD
UAE
Growth set to slow to 2.5% in 2012
We expect real GDP growth to slow to 2.5% in 2012 from an
expected 4.6% in 2011. This is partly as the boost from higher oil
production in 2011 (8.8% y/y according to Bloomberg estimates) is
now in the base and unlikely to be repeated in 2012. Our base
case scenario is for UAE oil output to remain flat on average
in 2012.
The non-oil sector is also likely to face headwinds from a
weaker global growth environment, high uncertainty and risk
aversion. PMI data shows that non-oil private sector activity has
already slowed in H2 2011, as the Eurozone crisis escalated and
global growth slowed.
The UAE is a global and regional trade hub, and non-oil trade
is a key contributor to growth. Transport, storage &
communication, a very narrow measure that excludes the
contributions of trade finance and other services associated with
international trade, accounted for almost 9% of the UAE’s GDP in
2010, according to official data. This compares with 4% of GDP
for Saudi Arabia and Qatar. Slower economic growth in China and
India are a bigger concern for us than recession in Europe, as
these two Asian countries alone account for almost 20% of the
total volume of UAE’s non-oil trade.
The high level of public sector debt maturing in 2012 (IMF
estimates USD 30bn) could also constrain UAE growth, as
demand for domestic credit by the public sector crowds out the
private sector, and as deleveraging makes less cash available for
domestic spending and investment.
Fiscal policy is likely to be growth supportive
We expect the authorities to continue to pursue a prudent
fiscal policy in 2012, prioritizing essential infrastructure projects
in the transport and utilities sectors and delaying non-essential
construction and development. Recent announcements of
increased public sector wages for federal government employees,
(which we estimate will cost AED 7-10bn), additional social
benefits, and a AED 10bn fund to assist with debt payments for
low income families should help to boost household consumption
in the UAE.
However, increased spending means that the UAE’s break-even
oil price is also creeping higher. We estimate a breakeven oil price
of USD 107 per barrel, up from an estimated USD 98 pb in 2011
and just USD 24pb in 2005.
We expect the consolidated UAE budget to run a small deficit
of -0.6% of GDP in 2012, down from an expected surplus of 2.1%
of GDP in 2011. This is based on stable oil output in 2012 and
consensus oil price forecasts at the time of writing.
UAE: GDP growth
Source: Haver Analytics, Emirates NBD Research
UAE: PMI
Source: Haver Analytics, Emirates NBD Research
UAE: Consolidated budget balance
Source: IMF, Emirates NBD Research
3.3
-1.6
1.4
4.6
2.5
-2
-1
0
1
2
3
4
5
2008 2009 2010 2011e 2012f
% y
/y
45
50
55
60
Aug-09 Mar-10 Oct-10 May-11 Dec-11
16.2
-13.1
-2.1
2.1
-0.6
-15
-10
-5
0
5
10
15
20
2008 2009 2010 2011e 2012f
% G
DP
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Research from Emirates NBD
Inflation to remain contained
Inflation in 2011 likely averaged 1%, almost unchanged from the
0.9% recorded in 2010. We expect inflation to remain modest in
2012 for several reasons:
1. Housing costs are likely to decline further on average in 2012
according to real estate analysts. At best, rents will remain
flat but are unlikely to contribute to higher inflation
2. World food prices declined 3.7% in the year to November
2011, and given the 6-9 month lag before this feeds through to
domestic inflation, this should help to keep a lid on UAE
inflation for most of 2012.
3. There is little evidence of demand-driven inflation or pricing
power in the UAE inflation data. Indeed, even as input costs
have risen through 2011, it appears as if this was absorbed by
manufacturers and retailers rather than being passed on to
consumers.
4. The USD has so far been the main beneficiary of risk
aversion, and to the extent that events in the Eurozone
deteriorate further, a strong USD in 2012 will keep a lid on
imported inflation.
Global liquidity conditions are likely to set the tone for UAE money market
Several factors have likely contributed to the outflow in bank
deposits seen in 2H 11. These could include an unwinding of the
differential between UAE and US rates as LIBOR rose; debt
repayments by GREs over the summer; and increased remittance
outflows as the USD strengthened. It is also possible that some of
the deposit inflows in Q1 that were attributed to the ‘Arab Spring’
have found their way into other assets in the UAE (such as
property).
Tighter liquidity conditions are evident in the decline of commercial
bank holdings of certificates of deposit (CDs) at the central bank,
as well as higher EIBOR rates.
We think developments in the global markets will continue to
set the tone in the UAE in 2012. Higher LIBOR rates and
demand for USD liquidity by European banks could be passed
through to the UAE banking system. To the extent that European
banks are unwilling or unable to roll over loans maturing this year
because of events in the Eurozone, deleveraging by GREs could
also be a drain on domestic liquidity.
We expect the appetite for domestic credit by public sector
entities will also remain high in this environment. Public
sector borrowing grew 32% in Jan-Sep 2011 over Jan-Sep 2010,
to the detriment of private sector credit growth, which grew 0.7%
over the same period. Although we think private sector credit
growth accelerated slightly in Q4 2011, we expect it to remain
weak relative to the rest of the GCC this year.
UAE: CPI
Source: Haver Analytics, Emirates NBD Research
UAE: Bank deposits and CDs held by banks
Source: Haver Analytics, Emirates NBD Research
UAE: pubic and private sector credit
Source: Haver Analytics, Emirates NBD Research
-6
-3
0
3
6
9
12
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
CPI Food Housing
0
20
40
60
80
100
120
140
850
900
950
1000
1050
1100
1150
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
AE
D b
n
AE
D b
n
Bank deposits (lhs)
CDs (rhs)
-10
0
10
20
30
40
50
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
% y
/y
public sector credit
private sector credit
Page 7
Research from Emirates NBD
UAE - Dubai
Tourism, retail trade to remain key drivers of growth
We expect real GDP growth of 3.5% for Dubai in 2011, driven
mainly by tourism and associated services, as well as wholesale &
retail trade. Where global trade was a key growth driver for Dubai
in 2010, we suspect trade volumes slowed as global growth
weakened in 2H 2011.
Dubai’s tourism sector has benefitted from the political
developments in the region, as GCC and international tourist
flows were diverted to the emirate. Passenger traffic through
Dubai airports were up almost 8% in Jan-Nov 2011 and hotel
occupancy has averaged 75% in Jan-Nov, up from average 70% in
Jan-Nov 2010. Moreover, where hotels had to discount rooms
heavily in 2010 to boost occupancy, the higher occupancy rate in
2011 was achieved even as revenue per available room enjoyed
strong growth.
Wholesale & retail trade and hospitality services in the emirate
would also have benefitted from the increase in tourism and we
expect these sectors to have registered good growth in 2011. To
the extent that MENA remains a less attractive tourist destination
because of political unrest and uncertainty in 2012, we expect
hospitality and trade to remain the primary drivers of Dubai’s
growth this year.
Transport, storage & communication sectors account for 14%
of Dubai’s GDP, the second biggest component after wholesale &
retail trade. This is unsurprising given Dubai’s position as a
regional and global trade hub. Although we expect these sectors
to have contributed to growth in 2011, the slowdown in global
growth (and thus international trade) since mid-2011 suggests that
growth in these sectors may be weaker in 2012.
Dubai’s open, service-based economy makes it particularly
vulnerable to slower growth in Asia and the rest of the world. The
ability of the authorities to offset a weaker external environment
with higher public spending is constrained by the high level of debt
maturing next year. In this context, and on the back of our recent
downward revisions to 2012 global growth, we have revised our
forecast for Dubai’s GDP growth down to 2.5% this year, from
4% previously.
2012 budget deficit set to narrow
Dubai has approved a 2012 budget deficit of USD 500mn (-
0.6% of GDP), lower than the planned 2011 deficit of -1.2% of
GDP. Investment expenditure for Dubai is expected to decline by
21.3% y/y to AED 5.9bn, from AED 7.5bn budgeted in 2011. Total
expenditure is expected to contract by -4.3% this year, while
revenue is projected to rise by 1.8%. We expect the deficit will be
financed by a sovereign bond issue in 2012.
Dubai: Real GDP growth
Source: Haver Analytics, DSC, Emirates NBD Research
Dubai: Hotel occupancy and RevPAR
Source: STR Global, Emirates NBD Research
Dubai: Residential real estate prices
Source: Bloomberg, Emirates NBD Research
3.3
-2.5
2.8
3.5
2.5
-3
-2
-1
0
1
2
3
4
2008 2009 2010 2011e 2012f
% y
/y
-30
-20
-10
0
10
20
30
0
20
40
60
80
100
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
%
Occupancy (lhs)
RevPAR (rhs)
-25
-20
-15
-10
-5
0
5
10
15
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
Mid-range villa AED per sq. ft.
Mid-range apartment AED per sq. ft.
Page 8
Research from Emirates NBD
Saudi Arabia
Growth likely to slow in 2012, on declining oil output
Preliminary estimates put 2011 growth at 6.8%, slightly higher
than the 6.5% we had expected. A key contributor was likely the
11.9% rise in oil production to 9.2mn bpd (Bloomberg estimates)
from 8.3mn bpd in 2010, as a result of geopolitical factors.
However, Saudi oil production is likely to decline in 2012 as Libya’s
oil output normalises. We have assumed a decline in average oil
production in 2012, to 8.7 mn bpd from 9.2mn bpd in 2011.
Public sector spending is expected to remain strong, helping
to offset the decline in oil output, as the USD 125bn package
announced in Q1 2011 will be disbursed over several years.
Although the official budget assumes a decline in expenditure to
SAR 690bn in 2012, we are comfortable with our forecast of SAR
800mn in spending, unchanged from 2011. This should help to
offset declining oil output, and support private sector growth.
Taking all this into account, and in the context of slower global
growth next year, we expect Saudi Arabia’s real GDP growth to
slow to 3.8% in 2012.
Budget surplus expected, but break-even oil price creeps higher
The 2011 budget recorded a substantial surplus of 14.3% of
GDP on the back of higher oil revenues and despite a substantial
increase in spending. We expect the budget surplus to narrow to
around 11% of GDP this year, as oil production is likely to decline.
The official budget for 2012 is typically conservative,
projecting a 37% decline in revenue and a 14% decline in
expenditure from 2011 levels. However, we believe the budget
was based on an average oil price assumption of around USD 70
per barrel, while consensus forecasts for oil prices in 2012 are
closer to USD 105 per barrel. Based on the consensus oil price
forecast, and even assuming the decline in oil production, we still
think revenue will top SAR 1tn this year.
The official expenditure projection of SAR 690bn implies a
breakeven oil price of around USD 77 per barrel. However, we
note that since 2000, actual expenditure is on average 23% above
the budgeted figure. Consequently, we retain our forecast for 2012
budget spending at SAR 800bn, or 16% over the official budget.
Based on this, we estimate the breakeven oil price is closer to
USD 90 per barrel in 2012. While this is below current oil price
levels, we note that the break even oil price in 2011 was USD 85
per barrel and in 2005 it was just USD 35 per barrel (based on
actual expenditure, and oil production as reported by Bloomberg).
We expect the 2012 budget will record a surplus of 11.0% of
GDP, substantially higher than the official 0.5% surplus projection.
Saudi Arabia: Real GDP growth
Source: Haver Analytics, Ministry of Finance, Emirates NBD
Research
Saudi Arabia: Budget balance
Source: Haver Analytics, Emirates NBD Research
Saudi Arabia: Break-even oil price
Source: Emirates NBD Research
4.2
0.1
4.1
6.8
3.8
0
2
4
6
8
2008 2009 2010 2011e 2012f
% y
/y
32.5
-6.1
5.2
14.3
11.0
-10
0
10
20
30
40
2008 2009 2010 2011e 2012f
% G
DP
0
20
40
60
80
100
2005 2006 2007 2008 2009 2010 2011e 2012f
US
D p
er
barr
el
Page 9
Research from Emirates NBD
Improved liquidity and credit growth
Liquidity conditions have improved in 2011, with broad money
growth (M3, excl. Govt deposits) in double digits for most of this
year. Although M3 growth has slowed over the summer, when we
include government deposits, the trend remains upwards.
Private sector borrowing also accelerated through the course
of last year, reaching 10.7% y/y in November. We expect
private sector credit growth to slow to 7.0% by end-2012 off a high
annual base and on the back of slower GDP growth. Public sector
credit growth has also been strong as the government steps up
infrastructure and social spending.
Inflation likely to remain under 5% next year
Inflation has averaged 4.9% year-to-November, despite the
boost to household incomes from the new spending measures in
Q1, and we expect it to remain broadly stable through the rest of
this year. We expect inflation in 2012 to remain under 5%, as food
and housing inflation eases and a strong USD should keep a lid on
imported inflation. However, to the extent that government
spending boosts household incomes (in the form of unemployment
benefits and wage increases), this could boost domestic demand
for services and contribute to some inflationary pressure in these
sectors.
External position is strong
Saudi Arabia’s external position remains exceptionally strong.
The current account surplus widened to 28.7% of GDP in 2011,
higher than the 25% of GDP we had forecast. We expect the
current account surplus to narrow to just under 20% of GDP in
2012 on the back of lower oil receipts as well as higher imports,
fuelled by both consumption and investment.
Official Net Foreign Assets stood at USD 526bn at the end of
November, almost 100% of 2011 nominal GDP. Saudi Arabia
holds no external debt, and government domestic debt is
exceptionally low at just 6.3% of GDP in 2011, down from 9.9% of
GDP in 2010.
Saudi Arabia: Money supply & credit growth
Source: Haver Analytics, Emirates NBD Research
Saudi Arabia: Inflation
Source: Haver Analytics, Emirates NBD Research
Saudi Arabia: SAMA’s NFAs
Source: Haver Analytics, Emirates NBD Research
-5
0
5
10
15
20
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11%
y/y
M4 (incl. govt deposits)Private sector creditM3 (excl. govt deposits)
0
2
4
6
8
10
12
14
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
CPI Housing Food
0
100
200
300
400
500
600
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
US
D b
n
Page 10
Research from Emirates NBD
Qatar
Hydrocarbon growth to stall in 2012
We estimate 2011 GDP growth of 17.9%, slightly lower than
the IMF’s latest projection of 19% growth. This phenomenal
growth rate is largely due to increased production of LNG as new
capacity came online in early 2011. Going forward however, LNG
production is expected to stabilize, and growth will depend on the
non-hydrocarbon sector. Consequently, we expect real GDP
growth of just 7.1% in 2012.
Budget likely to record a surplus, despite increased government spending
As in other GCC states, government spending will be a key
contributor to non-hydrocarbon growth in Qatar this year.
Aside from generous public sector wage increases, which were
announced in September 2011, the government is expected to
push ahead with an ambitious infrastructure program, including
construction of roads, railways, ports and airports. Projects
specifically related to the 2022 FIFA World Cup are unlikely to
commence before 2015.
Despite spending an extra QAR 30bn this fiscal year on public
sector wage increases and one-off bonuses, we expect the
budget to post a surplus of almost 7% of GDP in 2011/12. We
expect the budget surplus to remain at this level in FY 2012/13,
even as government infrastructure spending continues to rise.
Monetary policy to remain accomodative
Credit growth has accelerated in 2011, thanks to both lower
interest rates and increased demand for credit. Public sector
borrowing has soared in 2H 11, reaching 28.6% y/y in November
from just 0.8% y/y in May 2011. Private sector credit growth has
also recovered strongly in 2011, rising to 22.4% y/y in November
2011.
The main beneficiary of this increased private sector credit
has been the real estate sector, which saw credit expand 50%
y/y on average in 2011, albeit after a contraction in 2010. General
trade, services, consumption and industry also saw double digit
credit growth in 2011. Demand for credit is likely to remain strong
as infrastructure projects get underway, although we expect the
pace of credit growth to slow in 2012 off a high annual base.
Two interest rate cuts by the QCB have also contributed to
slower deposit growth since August, as QAR rates were
brought closer to USD rates. The decline was particularly marked
in non-resident deposits, which contracted -42% y/y in November
2011. However, public sector deposit growth has remained
healthy, compensating for the slower growth in private sector
deposits and supporting overall liquidity in the domestic banking
system.
Qatar: GDP growth
Source: Bloomberg, as at 27 November 2011
Qatar: Key planned infrastructure projects
Source: Reuters, Emirates NBD Research
Qatar: Budget balance
Source: Haver Analytics, Emirates NBD Research
17.7
12.0
16.2
17.9
7.1
0
5
10
15
20
2008 2009 2010 2011e 2012f
% y
/y
10.0
15.2
7.86.8 6.7
0
2
4
6
8
10
12
14
16
2008 2009 2010 2011e 2012f
% G
DP
Page 11
Research from Emirates NBD
Inflation is still benign
Despite the increase in public spending and strong credit growth,
inflation in Qatar has been relatively muted, thanks to an
oversupply of residential real estate. We expect inflation
averaged 2% in 2011, as declining housing costs offset rising
food and services costs.
Looking ahead, we expect inflation to rise to 3.5% in 2012 as a
result of public spending, wage growth and credit growth.
However, these inflationary pressures are likely to be offset to
some extent by a weak real estate sector, a strong USD and
easing global food inflation.
External debt is high
We expect that Qatar’s current account surplus rose to 25% of
GDP in 2011, up from 15.2% of GDP in 2010, on the back of
increased LNG volumes and prices, as well as higher oil prices.
The volume of Qatar’s oil output was broadly stable in 2011, in
contrast to sharply higher oil production in the other three GCC oil
exporters.
However, the official data shows that gross FX reserves almost
halved in 2011, suggesting outflows on the capital and financial
accounts of the balance of payments.
Qatar’s external debt is relatively high by regional standards;
we estimate it at USD 110bn at the end of 2011, or 60.5% of GDP.
However, much of this borrowing was used to finance LNG
infrastructure and will generate export revenues over the long-
term.
Although most of the planned infrastructure spending could be
financed through budget revenues, we expect Qatar will issue
external debt again in 2012, as it seeks to develop a benchmark
yield curve.
Qatar: Bank deposit growth
Source: Haver Analytics, Emirates NBD Research
Qatar: Bank loan growth
Source: Qatar Central Bank, Emirates NBD Research
Qatar: External debt
Source: IMF, Qatar Central Bank, Emirates NBD Research
0
10
20
30
40
50
60
70
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
Total customer depositsPublic sector Private sector
0
5
10
15
20
25
30
35
40
45
Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11
% y
/y
Total Domestic credit
Public Sectors
Private sector
46.1
79.5 78.3
60.5 62.5
0
20
40
60
80
100
2008 2009 2010 2011e 2012f
% G
DP
Page 12
Research from Emirates NBD
Kuwait
Growth hampered by political developments
Kuwait’s growth has lagged that of other GCC states over the last
few years, as the lack of consensus between parliament and the
government has hampered Kuwait’s ability to push ahead with
necessary infrastructure development. Although the authorities
approved a USD 100bn four-year development plan in 2010,
tensions between the parliament and the government resurfaced in
2011, and little progress has been made on implementation.
Politics is likely to remain the dominant issue in Q1 2012, with
parliamentary elections scheduled for 2 February, and a new
government formed thereafter.
We expect Kuwait’s GDP growth accelerated to 5% in 2011,
largely on the back of higher oil output, as was the case in Saudi
Arabia and the UAE. However, oil production in Kuwait is likely to
stabilize in 2012 as OPEC adjusts to higher Libyan oil production.
Non-oil growth will depend on how quickly and effectively the new
government and parliament can push ahead with the economic
agenda from Q2. At this stage, we think Kuwait’s overall GDP
growth could slow to 3.6% this year.
Budget surplus likely to remain substantial
The 2010/11 budget recorded a surplus of 24% of GDP,
according to our estimates, despite a substantial increase in
subsidies in Q1 11 which had been unbudgeted. We expect the
budget surplus to widen to almost 29% of GDP in FY2011/ 12, on
the back of higher oil revenues year-to-date as well as lower than
planned expenditure. Just 36% of the budget has been disbursed
so far in the current fiscal year (1 April to 30 Nov 2011).
Looking ahead to FY 2013, we expect the surplus to narrow
slightly to a still substantial 26.5% of GDP, even after assuming
a 10% rise in government spending.
Inflation is sticky downwards
Average inflation 2011 likely reached 4.8% in 2011, one of the
highest inflation rates in the GCC. Food prices have been a key
driver of inflation, followed by housing. With global food prices
moderating, and the USD likely to remain strong through this year,
we expect inflation in Kuwait to ease to around 4% in 2012.
Credit growth remains weak, liquidity improves
As banks in Kuwait have sought to repair their balance sheets
following the financial crisis, credit growth to the private sector has
remained weak. As in the UAE, we expect only a gradual
improvement on this front in 2012. However, liquidity in the
banking system appears to be improving, with M2 growing at 9.2%
y/y in November 2011.
Kuwait: GDP growth
Source: Haver Analytics, Emirates NBD Research
Kuwait: Budget balance
Source: Haver Analytics, Emirates NBD Research
Kuwait: Money supply and credit growth
Source: Haver Analytics, Emirates NBD Research
6.0
-6.1
3.3
5.0
3.6
-10
-5
0
5
10
2008 2009 2010 2011e 2012f
% y
/y
6.9
21.1
24.0
28.826.5
0
10
20
30
40
2008 2009 2010 2011e 2012f
% G
DP
0
2
4
6
8
10
12
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
M2 Private sector credit
Page 13
Research from Emirates NBD
Oman
Growth likely to slow to 4.5% in 2012
We have revised up forecast real GDP growth to 5% in 2011,
from 4.1% previously, on the back of higher non-oil growth
estimates by the IMF. Non-oil growth has benefitted from higher
public spending, which is expected to continue over the medium
term as the government implements an ambitious investment
program that includes the energy sector, transport, utilities and
tourist infrastructure projects.
Oman’s oil output is estimated to have risen by around 2.5%
last year (Energy Intelligence estimates, via Bloomberg), less than
the 4% growth that authorities had been aiming for. Consequently,
we expect Oman, which is not an OPEC member, to continue
increasing its oil output in 2012, although perhaps at a slower
pace. We note that most of Oman’s oil is exported to China, and
that the country is thus more vulnerable to slower Asian growth
than to a recession in Europe. Overall, we expect growth to slow
slightly to 4.5% in 2012.
Spending rises to tackle unemployment
In addition to infrastructure investment, and in line with other GCC
states, the authorities boosted current spending in the form of
wages and subsidies in Q1 2011. 44,000 new jobs were created
in the government sector in a bid to tackle high unemployment,
which reportedly reached 24.4% among nationals in 2010. The
IMF estimates that 45,000 new jobs will be needed every year to
absorb new entrants to the labour market and reduce
unemployment.
Despite the unbudgeted extra social and wage spending in 2011,
we still expect the budget recorded a surplus of 8.7% of GDP last
year, thanks to higher oil prices as well as increased output.
Oman will also receive around USD 1bn per annum in aid from
other GCC states to help finance infrastructure and housing.
Taking this into account, we expect the budget surplus to
narrow to 5.3% of GDP this year.
Financial indicators are encouraging
Average inflation is likely to have reached 4.1% in 2011, up from
3.2% in 2010, with food prices being the main culprit. This
pressure should moderate in 2012, and we expect average
inflation to ease to 3.8% in 2012.
Money supply and credit growth have expanded in 2011, as oil
receipts have contributed to greater liquidity. Money supply growth
accelerated to 17.5% y/y in October, although we expect this to
have eased to around 15.5% by end-2011. Private sector credit
growth has also picked up, reaching 10.9% y/y in October, and we
expect it to have reached 13% by end-2011. Both money supply
and credit growth are likely to moderate by end-2012, off the high
annual base.
Oman: GDP growth
Source: Haver Analytics, Emirates NBD Research
Oman: Budget balance
Source: Haver Analytics, Emirates NBD Research
Oman: Money supply and credit growth
Source: Haver Analytics, Emirates NBD Research
12.8
1.1
4.05.0
4.5
0
5
10
15
2008 2009 2010 2011e 2012f
% y
/y
13.1
3.9
8.3 8.7
5.3
0
5
10
15
2008 2009 2010 2011e 2012f
% G
DP
0
4
8
12
16
20
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
M2 Private sector credit
Page 14
Research from Emirates NBD
Bahrain
Growth bucks the GCC trend
Bahrain was the only GCC country that saw growth slow in
2011 on the back of political upheaval in the first quarter, and the
fact that oil accounts for only a relatively small proportion of its
economy – just 13% of real GDP in 2010 – compared with other
GCC states.
Real growth averaged just 1.8% in the first 9 months of the year,
compared to 4.9% in the same period 2010. We expect real GDP
growth of 2.2% in 2011, down from 4.7% the previous year.
Provided the political environment remains largely stable, we
expect Bahrain to continue the recovery started in 2H 11, and we
expect growth to rise to 3.3% in 2012.
Government spending to underpin growth
Although Bahrain’s oil production is not a key driver of growth, it is
still the main source of government revenue, and higher oil prices
in 2011 have helped to boost the coffers. In addition, Bahrain (like
Oman) has been promised USD 1bn per year in aid from the other
GCC states for the next 10 years, to help finance infrastructure
investment.
Spending in Bahrain rose sharply in 2011, as the government
announced a substantial one-off cash transfer of USD2650 to each
household, as well as other allowances and subsidies in a bid to
help quell opposition to the government in Q1. Public sector
employment also rose. Nevertheless, we still expect the budget
posted a surplus of 5.4% of GDP last year.
In 2012, we expect current spending to remain high, and the
surplus to narrow to just 3.2% of GDP.
Inflation falls to zero in 2011
One of the consequences of the upheaval and economic
contraction in Q1 2011 was a sharp decline in housing costs,
which fell more than 14% y/y in March. As housing accounts for
almost 24% of the total CPI, this effectively pushed the headline
reading into deflation. We expect average inflation in 2011 to be
zero, rising to 2.5% in 2012.
Money and credit growth recovered in 2H11
Unsurprisingly, money supply growth slowed sharply in 1H 11 but
appears to have improved in Q3. We expect M3 growth to have
reached 5.4% y/y by end-2011, accelerating to 6.2% y/y by end-
2012.
Private sector credit growth has recovered well in 2H 11 and we
expect it to have reached 14.5% y/y by end-2011, slowing to 6.5%
in 2012 off the high annual base.
Bahrain: GDP growth
Source: Haver Analytics, Emirates NBD Research
Bahrain: Budget balance
Source: Haver Analytics, Emirates NBD Research
Bahrain: Inflation
Source: Haver Analytics, Emirates NBD Research
6.3
3.1
4.5
2.2
3.3
0
1
2
3
4
5
6
7
2008 2009 2010 2011e 2012f
% y
/y
7.4
-5.1 -5.3
5.4
3.2
-6
-4
-2
0
2
4
6
8
10
2008 2009 2010 2011e 2012f
% G
DP
-16
-12
-8
-4
0
4
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11
% y
/y
Headline CPI
Housing
Page 15
Research from Emirates NBD
Key Economic Forecasts: UAE
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (AED bn) 1156.3 992.8 1093.1 1263.2 1290.3
Nominal GDP (USD bn) 315.1 270.5 297.9 344.2 351.6
GDP per capita (USD) 66120 53399 55359 60351 58156
Real GDP Growth (% y/y) 3.3 -1.6 1.4 4.6 2.5
Monetary Indicators (% y/y)
M2 19.2 9.8 6.2 4.5 5.0
Private sector credit 49.3 0.3 0.6 3.5 2.0
CPI (average) 12.3 1.6 0.9 1.0 1.3
External Accounts (USD bn)
Exports 240.1 192.3 221.8 261.1 263.8
o/w hydrocarbons 102.9 68.2 77.5 109.6 106.4
Imports 176.3 149.7 158.3 174.1 182.8
Trade balance 63.8 42.6 63.5 87.0 81.0
% GDP 20.3 15.7 21.3 25.3 23.0
Current account balance 23.3 8.3 24.2 48.5 41.5
% GDP 7.4 3.1 8.1 14.1 11.8
Fiscal Indicators (% GDP)
Consolidated budget balance 16.2 -13.1 -2.1 2.1 -0.6
Revenue 38.6 25.3 28.8 30.7 29.5
Expenditure 22.5 38.4 31.0 28.5 30.1
Source: Haver Analytics, Emirates NBD Research
Page 16
Research from Emirates NBD
Key Economic Forecasts: Saudi Arabia
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (SAR bn) 1786.1 1412.6 1679.1 2137.0 2204.0
Nominal GDP (USD bn) 476.3 376.7 447.8 569.9 587.7
GDP per capita (USD) 18471 14129 16245 19997 19949
Real GDP Growth (% y/y) 4.2 0.1 4.1 6.8 3.8
Hydrocarbon 4.2 -7.8 2.2 4.6 -5.0
Non- hydrocarbon 4.3 3.5 4.9 7.8 4.8
Monetary Indicators (% y/y)
M2 17.6 10.7 5.0 11.7 8.6
Private sector credit 27.1 0.0 7.5 11.4 7.0
CPI (average) 9.9 5.1 5.4 4.9 4.8
External Accounts (USD bn)
Exports 313.4 192.2 251.0 343.2 337.1
o/w hydrocarbons 281.0 163.1 215.2 302.4 292.2
Imports 100.6 86.4 96.7 98.7 118.4
Trade balance 212.7 105.8 154.4 244.5 218.7
% GDP 44.7 28.1 34.5 42.9 37.2
Current account balance 132.3 21.0 66.8 159.5 127.1
% GDP 27.8 5.6 14.9 28.0 21.6
SAMA's Net foreign Assets 437.9 405.3 440.4
Fiscal Indicators (% GDP)
Consolidated budget balance 32.5 -6.1 5.2 14.3 11.0
Revenue 61.6 36.1 44.2 51.9 47.3
Expenditure 29.1 42.2 38.9 37.6 36.3
Public debt 13.2 15.9 9.9 6.3
Source: Haver Analytic, Emirates NBD Research
Page 17
Research from Emirates NBD
Key Economic Forecasts: Qatar
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (QAR bn) 419.6 356.0 463.5 662.0 703.3
Nominal GDP (USD bn) 115.3 97.8 127.3 181.9 193.2
GDP per capita (USD) 79606 59706 75034 102068 103270
Real GDP Growth (% y/y) 17.7 12.0 16.2 17.9 7.1
Hydrocarbon 13.2 4.5 24.0 28.5 5.0
Non- hydrocarbon 21.3 17.6 11.0 10.0 9.0
Monetary Indicators (% y/y)
M2 19.7 16.9 23.1 21.5 14.6
Private sector credit 1.4 1.0 8.1 18.0 13.0
CPI (average) 15.2 -4.9 3.5 2.0 3.5
External Accounts (USD bn)
Exports 64.4 49.0 62.8 92.6 97.7
o/w hydrocarbons 58.9 44.4 56.3 84.8 88.6
Imports 25.1 22.5 25.4 28.9 32.6
Trade balance 39.3 26.6 37.5 63.7 65.1
% GDP 34.1 27.2 29.4 35.0 33.7
Current account balance 33.1 12.1 19.4 44.6 45.1
% GDP 28.7 12.4 15.2 24.5 23.4
Total external debt 53.1 77.7 99.7 110.1 120.8
% GDP 46.1 79.5 78.3 60.5 62.5
Fiscal Indicators (% GDP)
Consolidated budget balance 10.0 15.2 7.8 6.8 6.7
Revenue 33.6 47.5 38.5 33.4 33.8
Expenditure 23.6 32.3 30.7 26.6 27.1
Source: Haver Analytic, Emirates NBD Research
Page 18
Research from Emirates NBD
Key Economic Forecasts: Kuwait
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (KWD bn) 39.6 30.5 35.6 45.6 47.3
Nominal GDP (USD bn) 147.4 105.9 124.3 164.7 171.0
GDP per capita (USD) 42821 30404 34705 44987 45711
Real GDP Growth (% y/y) 6.0 -6.1 3.3 5.0 3.6
Monetary Indicators (% y/y)
M2 15.9 13.2 3.0 9.0 7.6
Private sector credit 16.6 6.2 1.9 2.5 3
CPI (average) 10.6 4.0 4.0 4.8 4.0
External Accounts (USD bn)
Exports 86.9 51.7 67.0 97.7 98.2
o/w hydrocarbons 82.6 46.6 61.7 90.8 90.9
Imports 22.9 17.3 19.1 23.8 29.8
Trade balance 64.0 34.4 47.9 73.9 68.5
% GDP 43.4 32.5 38.5 44.9 40.0
Current account balance 60.2 25.8 36.8 64.7 58.2
% GDP 40.9 24.3 29.6 39.3 34.0
Fiscal Indicators (% GDP)
Consolidated budget balance 6.9 21.1 24.0 28.8 26.5
Revenue 53.0 58.0 58.7 60.0 59.6
Expenditure 46.1 36.9 34.7 31.2 33.0
Source: Haver Analytic, Emirates NBD Research
Page 19
Research from Emirates NBD
Key Economic Forecasts: Oman
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (OMR bn) 23.3 18.0 22.2 27.6 28.8
Nominal GDP (USD bn) 60.4 46.8 57.8 71.7 74.8
GDP per capita (USD) 21699 16451 19888 24180 24741
Real GDP Growth (% y/y) 12.8 1.1 4.0 5.0 4.5
Monetary Indicators (% y/y)
M2 23.1 4.7 11.3 15.5 8.3
Private sector credit 44.0 4.9 6.5 13.0 7.0
CPI (average) 12.5 3.7 3.2 4.1 3.8
External Accounts (USD bn)
Exports 37.8 27.7 36.6 44.1 45.7
o/w hydrocarbons 28.7 18.1 25.3 34.4 35.2
Imports 20.7 16.1 17.9 20.6 22.6
Trade balance 17.0 11.6 18.8 23.5 23.0
% GDP 28.2 24.8 32.5 32.8 30.8
Current account balance 5.0 -0.6 5.1 9.0 8.5
% GDP 8.3 -1.3 8.8 12.6 11.4
Fiscal Indicators (% GDP)
Consolidated budget balance 13.1 3.9 8.3 8.7 5.3
Revenue 45.6 41.1 40.4 42.0 40.5
Expenditure 32.5 37.2 32.1 33.3 35.1
Source: Haver Analytic, Emirates NBD Research
Page 20
Research from Emirates NBD
Key Economic Forecasts: Bahrain
National Income 2008 2009 2010 2011e 2012f
Nominal GDP (BHD bn) 8.33 7.36 8.63 9.51 9.82
Nominal GDP (USD bn) 22.2 19.6 22.9 25.3 26.1
GDP per capita (USD) 20083 16626 18655 20560 21226
Real GDP Growth (% y/y) 6.3 3.1 4.5 2.2 3.3
Monetary Indicators (% y/y)
M2 20.8 4.5 12.4 5.4 6.2
Private sector credit 43.6 -0.7 8.3 14.5 6.5
CPI (average) 3.5 2.8 2.0 0.0 2.5
External Accounts (USD bn)
Exports 17.3 11.9 13.6 17.6 17.8
o/w hydrocarbons 13.8 8.9 10.2 14.1 14.0
Imports 14.2 9.6 11.2 13.3 13.9
Trade balance 3.1 2.3 2.5 4.3 3.8
% GDP 13.9 11.5 10.7 17.1 14.7
Current account balance 2.3 0.6 0.8 1.0 1.3
% GDP 10.2 2.9 3.4 3.9 5.0
Fiscal Indicators (% GDP)
Consolidated budget balance 7.4 -5.1 -5.3 5.4 3.2
Revenue 32.1 23.2 25.2 59.2 58.3
Expenditure 24.7 28.3 30.5 53.8 55.1
Source: Haver Analytic, Emirates NBD Research
Page 21
Research from Emirates NBD
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Research from Emirates NBD
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Head of Sales & Structuring
Sajjid Sadiq Sayed +971 4 230 7777 [email protected]
Saudi Arabia Sales Numair Attiyah
+966 1 282 5625 [email protected]
Singapore Sales Supriyakumar Sakhalkar
+65 6 578 5627 [email protected]
Group Corporate Communications
Ibrahim Sowaidan
+971 4 609 4113 [email protected]
Claire Andrea
+971 4 609 4143 [email protected]