Gulf oil revenues to cross $600 bn annually: report

July 31st, 2008 - 3:55 pm ICT by IANS  

Dubai, July 31 (IANS) 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. 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 tonnes 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.

At the same time, 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.

The GFH-designed trinity is designed to explain the difficulty of maintaining low interest rate amidst high commodity prices and low interest rates as against the conventional trinity of fixed exchange rate, free capital mobility and independent monetary policy.

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