(MENAFN - Khaleej Times) The GCC countries will experience robust growth in 2012 on the back of high oil revenues that are expected to hit 572 billion this year, while the net foreign assets of the six-member bloc are projected to hit 2.1 trillion by 2013, the Institute of International Finance, IIF, said in its forecast on Wednesday.
The IIF, the leading global association of financial services firms with more than 450 member institutions, said the GCC countries, possessing 40 per cent of proven world oil reserves, have spare oil production capacity now of 2.5 to three million barrels per day and are positioned to meet any possible shortfall in supplies to world markets as a result of possible declines in Iranian exports as a result of sanctions.
It expects that average oil prices will be about 114 per barrel through 2012 with GCC oil production this year at 17.3 million barrels per day, after 16.5 million in 2011.
The IIF forecasts that the GCC's external current account surplus is likely to rise to a new record of 358 billion this year, up from an estimated 327 billion in 2011. Budget revenues from oil are projected to grow from 538 billion in 2011 to a record 572 billion in 2012.
"As a result, the consolidated fiscal surplus will widen to 12 per cent of the gross domestic product, or GDP. With the combined external current account surplus expected to be a record 358 billion, gross foreign assets could rise to about 2.3 trillion. With relatively little external debt, the region's net foreign assets position of 1.9 trillion (127 per cent of GDP), and then rising to around 2.1 trillion by the end of 2013, will remain substantial," it said.
It noted that about 60 per cent of the foreign assets of the region are managed by sovereign wealth funds.
Dr George T. Abed, IIF senior counselor and IIF director for Africa and the Middle East, said however, there are clearly risks for the region if the turbulence in other Arab countries will be prolonged.
Other risks from the sanctions on Iran indicate ambiguous outcomes. On the one hand, a large drop in Iran's oil exports, but in the absence of a military confrontation, suggests an upside risk, since it would require significantly higher oil output from the GCC countries, raising the growth rate and lifting hydrocarbon receipts and government spending.
However, an escalation of the crisis into a military conflict with Iran, even without necessarily the involvement of the GCC countries themselves, could bring about untold damage to the economies of the region.
Dr Garbis Iradian, IIF deputy director, Africa and Middle East Department, forecast some moderation in overall 2012 growth for the GCC at 4.9 per cent after the exceptional rise of 6.9 per cent last year.
Qatar, Oman and Saudi Arabia will continue to be the strongest performers. Saudi Arabia is expected to see growth of about five per cent driven by the continued sizable increase in crude oil production and the lag effect of the sharp increase in public spending (26 per cent) of last year. The modest inflationary pressures in Saudi Arabia will persist, as they reflect local housing bottlenecks and stronger domestic demand."
"In the UAE, we expect overall growth to moderate to 3.2 per cent in 2012 from an estimated 4.7 per cent in 2011," said Iradian.
Average crude oil production in Abu Dhabi is expected to increase by 3.5 per cent in 2012, compared with an increase of nine per cent in 2011.
"Continued higher oil prices and fiscal surpluses have encouraged Abu Dhabi's Executive Council to press ahead with several of its large projects this year. This may more then offset a possible weakening of private sector investment and result in non-hydrocarbon growth of 3.1 per cent in 2012."
The IIF expects Dubai's real growth to decelerate from 3.2 per cent in 2011 to 2.6 per cent in 2012 as a result of the weaker global prospects and the sanctions on Iran, which would adversely impact trade activity. "Dubai is more vulnerable to global economic developments than Saudi Arabia, Qatar, Kuwait, and Abu Dhabi due to its high debt, its diversified economy, and its strong links to global trade. However, Dubai's excellent infrastructure and its prime location as a global hub for trade and tourism should continue to underpin diversification and robust growth over the medium term," the IIF said.
GCC banks, the report said, remain well capitalised and profitable.
"The balance sheets of banks in the region have been strengthened as a result of the strong economic performance in recent years, high government participation in banks and improvement in regulation and supervision. The average capital adequacy ratio is above 15 per cent for every banking system in the region, although variations among individual banks are at times significant.
While nonperforming loan (NPL) ratios are in the low single digits, they remain relatively high in Kuwait and the UAE at close to eight per cent. The ratios of banks' provisions to potential losses associated with NPLs are high in Saudi Arabia, Oman and Qatar, but are below 60 per cent in Bahrain and Kuwait, it said.