1. A Short, Sharp Shock: Economic Outlook for the GCC in 2009-10. A Short, Sharp Shock: Economic Outlook for the GCC in 2009-10

2. Forecast The GCC faces a year of reduced economic activity that will test GCC government capabilities and the viability of businesses. 2009 is forecast to constitute a short, sharp shock to GCC private businesses. The region as a whole will continue to be solvent, and is likely to recover quickly once global economic trends improve. A recovery is possible in 2010.

3. GCC GDP, based on WTI oil price The dollar value of the GCC’s gross domestic product (GDP) at current prices will probably contract by about 20 per cent in 2009, MEED Insight forecasts. This is based on the assumption that the price of West Texas Intermediate (WTI) crude oil will fall by no more than one-third - to an average of $60 a barrel - in 2009. That figure is down from more than $96 a barrel in 2008, due to Opec’s decision to cut production. GCC GDP, based on WTI oil price

4. Oil production GCC oil production will be cut by about 10 per cent to 14.6 million barrels a day (b/d) next year. Oil prices below $60 a barrel cannot be ruled out. Pessimists believe world oil demand will fall in 2009 - the first time this has ever been recorded for a full year. If oil averages $40 a barrel this year, the dollar value of current GDP in the GCC will fall by at least one-third, and there would be pervasive budget deficits.

5. Charts: Oil supply & prices f=forecast; b/d=barrels a day. Sources: Opec; Energy Information Administration; International Energy Agency; MEED f=forecast Sources: GCC governments; MEED GCC oil production (m b/d) $ value of GCC GDP at current prices (% change)

6. Six other factors Six other factors for GCC economies 1.The volatility of the dollar - to which five GCC currencies are pegged. 2.The equities crash. 3.The liquidity squeeze. 4.The global real estate crash. 5.The aviation and tourism slump. 6.Lower volumes of world trade.

7. Quote “Whichever way the figures are manipulated, the economies of the GCC are about to be dealt a bitter blow”

8. Government spending 1.The new worry is that private investment, which tends to fall with oil prices, will drop precipitately. 2.Business is therefore relying on governments to maintain and even increase spending, particularly in the projects sector. 3.An increase in non-oil spending is anticipated, based on the assumption that governments will maintain spending.

9. Spending plans, by country 1.Saudi Arabia has signalled that it intends to maintain spending in 2009, despite the oil price slump. 2.Kuwait has announced a huge increase in spending. 3.Qatar is also likely to keep spending high. 4.The situation in the UAE is mixed: Abu Dhabi has the resources to maintain expenditure. Dubai is almost certain to cut investment unless a cash injection from Abu Dhabi is provided.

10. 2010: Two radical improvements 1.Opec will act to reverse the price slump: Evidenced by Saudi Arabia’s King Abdullah saying in November 2008 that $75 a barrel was the “right price”. Saudi could slash production close to 8 million b/d. Other Opec states and Russia will need to take supportive measures too. 2010: A radical improvement

11. 2010: Two radical improvements 2.Stimulus to US economy since summer 2008: Sharp appreciation of the dollar, which has increased the purchasing power of US consumers. Crash in oil prices: America will spend at least $100bn less on oil imports in 2009 than in 2008, at $60 a barrel. Relief pack gages: Bush’s $700bn Troubled Assets Relief Programme (TARP) and Obama’s $600bn economy injection, through capital spending and tax cuts. Between them, these packages are equivalent to almost 10 per cent of US GDP. 2010: Another radical improvement

12. Light at the end of the tunnel Even with a 20 per cent fall in GDP, the GCC economy will be about the same size, in money terms, as in 2007. Businesses must restructure and downscale to the scale appropriate in 2007, and wait for the recovery. Governments will have to ensure the GCC banking system provides finance. Governments must reject the conventional response to oil-price falls - cutting spending. This will help young businesses, which could play a vital long-term role. Light at the end of the tunnel

13. Executive summary GCC economies will recover quickly in 2010, after contracting in real and current terms in 2009, due to an expected rebound in oil prices. The GCC will remain solvent during 2009, despite the elimination of current account and budget surpluses. The longer-term outlook remains positive due to globalisation and oil market trends. Some GCC economies, regions and sectors will be seriously affected; businesses lacking stable income sources may struggle to survive.

14. Executive summary continued GCC governments are expected to use their savings to maintain capital spending on infrastructure and vital services. This will help sustain the private sector and encourage further non-oil economic growth. 2009 is forecast to constitute a short and, potentially, sharp shock to private businesses. This will be mitigated by GCC government action and conditioned by the extent to which the region’s abundant private liquidity can be mobilised by the banking and finance system. Executive summary continued

15. "Higher oil prices and production in 2010 will deliver a current account surplus of up to $2.5bn in Oman " Quotes from the full report " Bahrain ’s economy has increased in nominal terms by more than 150 per cent since 2002" " Kuwait 's trade surplus is estimated to have reached a record of almost $60bn in 2008" " Qatar exports rose by almost 400 per cent from 2002 to about $57bn" " Saudi Arabia will record a current account deficit of up to $25bn in 2009" "MEED expects the UAE will reduce oil production by 10 per cent to 2.3 million b/d"

16. To order A Short, Sharp Shock Order the full MEED Insight report, A Short, Sharp Shock: Economic Outlook for the GCC in 2009-10, for $2,500. Download the order form (PDF) Download the order form (PDF)

17. About us About MEED Insight MEED Insight offers Middle East research reports and in- depth, tailored analysis. For more information, contact insight@meed.com or visit www.meed.com/insight. insight@meed.com www.meed.com/insight About the author The author of the report is Edmund O’Sullivan. Read his weekly Last Word columns. weekly Last Word columns

18. MEED Insight A Short, Sharp Shock: Economic Outlook for the GCC in 2009-10 MEED Insight - www.meed.com/insightwww.meed.com/insight January 2009