gcc quarterly - emirates nbd · production. fiscal stimulus also contributed significantly to real...

Quarterly 10 January 2013

Khatija Haque

Senior Economist

+971 4 230 7801

[email protected]

GCC Quarterly

We expect average GCC growth to slow to 4.6% in 2013 from an estimated

6.0% in 2012. Growth in 2012 was higher than initially forecast on the back of

substantial, unexpected increases in oil production. However, we expect oil output

to remain broadly stable in 2013 in our base case scenario, and most of the GDP

growth to come from the non-oil sectors this year.

We have revised up our forecast for the UAE’s growth in 2013 to 3.8% from

3.5% previously. We have also raised our estimates for 2012 real GDP growth to

3.7% from 3.0% previously, on higher than anticipated oil production, and strong

manufacturing PMI data in Q4 2012.

Saudi Arabia’s economy expanded by 6.8% in 2012, higher than our 5.8%

forecast, with construction, transport, storage & communications posting double

digit growth. We expect growth to slow to 5.4% in 2013 as oil production remains

unchanged. Increased government spending is expected to support non-oil growth

in the Kingdom this year.

In Qatar, we expect growth to slow to 5.2% in 2013 from an estimated 6.7% in

2012. The contribution to growth from the hydrocarbon sector has all but

disappeared, and we expect infrastructure investment and public spending to be

the main economic drivers in 2013-2015.

We expect Kuwait’s growth to slow to 3.0% in 2013 from an estimated 6.0% in

2012, as the political stalemate between parliament and the government makes

budget execution challenging. The high 2012 growth estimate reflects a 12.6%

increase in oil production, and we think this is unlikely to be replicated this year.

Oman’s economy grew 8.3% in 2012, according to official estimates, higher

than our 5.2% forecast. Increased oil production and substantial fiscal stimulus

contributed to the better than expected 2012 outcome. This year, we expect growth

to moderate to 4.7% on the back of a slower expansion in the hydrocarbons sector.

We expect growth in Bahrain to slow to 2.8% this year from an estimated

3.8% in 2012. We expect government spending to be a key contributor to growth,

notwithstanding the projected decline in the official budget for 2012.

2013 growth forecasts, by region

Source: IMF WEO Oct 2012, Emirates NBD Research

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Contents

Overview ...................................................................................................................................... Page 3

UAE ............................................................................................................................................... Page 5

UAE - Dubai ............................................................................................................................... Page 7

Saudi Arabia ............................................................................................................................... Page 8

Qatar ............................................................................................................................................. Page 9

Kuwait ........................................................................................................................................ Page 10

Oman .......................................................................................................................................... Page 11

Bahrain ....................................................................................................................................... Page 12

Key Economic Forecasts..................................................................................................... Page 13

Overview

We estimate average GCC growth at 6.0% in 2012, down from

7.4% in 2011 but higher than the 3.9% we had forecast at the

start of last year, mainly due to higher than expected oil

production. Fiscal stimulus also contributed significantly to real

growth, particularly in Saudi Arabia and Oman.

Oil sector developments and outlook

GCC oil production in 2012 was 6.2% higher than 2011, and

this was a key driver of growth in the region last year. GCC oil

output rose sharply in April and then again over the summer as oil

prices surged, but then declined in Q4 12. On average, Saudi

Arabia’s crude output increased 5.8% over 2011 to reach 9.8mn

bpd, while Kuwait’s oil output rose 12.6% y/y to reach 2.8mn bpd;

higher than the UAE’s average output of 2.6mn bpd. The UAE’s

oil production was 5.2% higher y/y.

Despite some volatility through the year, the average OPEC

reference oil price was just 2% higher than 2011, at USD 109.45

per barrel.

Bloomberg consensus oil price forecasts1 for 2013 average USD

103 per barrel, implying a 6% decline in the average oil price this

year compared to 2012. Consequently, we expect oil production

in the GCC this year to remain broadly unchanged to 2012 in

our base case scenario.

Non-oil sectors to drive GCC growth in 2013

As a result, we expect most of the growth in the region to

come from the non-oil sectors in 2013, underpinned by high

government spending. This is most evident in Saudi Arabia and

Oman, which have announced substantial increases in

government spending for the next fiscal year.

We have revised up our forecast for Saudi Arabia’s 2013

growth to 5.4% from 4.5%, and we now expect Oman’s

economy to expand by 4.7% in 2013, up from our previous

forecast of 4.0%. Unlike the rest of the GCC, we expect Oman’s

hydrocarbon sector to continue to expand slightly this year, as the

government invests in production and refining capacity.

We expect government spending in Qatar to be increased in

the 2013/14 fiscal year as well. However, we forecast growth will

slow to 5.2% in 2013 from an estimated 6.7% in 2012.

The fiscal stimulus in the UAE is likely to be more moderate

compared with the rest of the region, as the authorities have

adopted a more cautious fiscal stance post-2009. Although the

non-oil private sector has shown good signs of recovery

(particularly in manufacturing, real estate, hospitality and retail

sectors) in 2012, the low level of private sector credit growth could

1 We average WTI and Brent forecasts, as this is a reasonable proxy for

the OPEC reference price.

2013 Regional growth forecasts

Source: IMF WEO Oct 2012, Emirates NBD Research

GCC Oil output and price

Source: Bloomberg, Emirates NBD Research

Average* GCC budget balance

Source: Haver Analytics, Emirates NBD Research

* Nominal GDP weighted average

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GCC oil production (excl Oman, Bahrain)

OPEC oil price

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2008 2009 2010 2011 2012f 2013f

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constrain economic activity in 2013. On the positive side, the

increased demand from the wider region will likely continue to

support growth in the UAE’s non-oil sectors in 2013. We have

revised up our forecast for the UAE’s growth this year to 3.8%

from 3.5% previously.

In Kuwait, budget execution has been hampered by the

deadlock between parliament and the government. Unless this

issue is resolved, we do not expect significant progress with

budget implementation in 2013, and this is the key reason for our

relatively low 3.0% growth forecast in Kuwait this year.

We expect Bahrain’s growth to ease slightly to 2.8% in 2013

from an estimated 3.8% in 2012. While the hospitality sector has

recovered from the sharp decline in 2011, it contributes a relatively

small amount to overall economic activity. We expect government

spending to be a key contributor to growth this year,

notwithstanding the projected decline in the official budget for

2012.

Risks to 2013 growth forecasts

Overall, we expect GCC growth to slow to 4.6% in 2013 from

an estimated 6.0% in 2012. There are clearly both upside and

downside risks to our forecast. An escalation in geopolitical risks

or a faster than expected recovery in global growth could result in

sharply higher oil prices, and if sustained, this could prompt GCC

states to boost oil production from already high levels in 2013.

On the downside, a deeper recession in the Eurozone or slower

than expected growth in China could trigger a sharper than

expected decline in oil prices. In this scenario GCC states could

cut oil production, which would drag down overall GDP growth in

the region. In this scenario, we think Saudi Arabia is the most

vulnerable as it is typically the ‘swing’ oil producer in the region. If

oil prices fall well below expectations this year, prompting

governments in the region to curtail spending, then this would be a

further drag on growth.

Inflation set to rise this year

Inflation has been relatively benign in 2012; we estimate average

GCC consumer inflation at 2.9% down from 3.5% in 2013.

Declining housing costs have helped to offset increases in the

price of some services. However, we expect inflation to accelerate

to 3.8% in 2013 as aggregate demand continues to rise and

housing costs in the region, particularly Qatar and the UAE,

recover as well.

External balances remain healthy

We estimate the average current account surplus in the GCC rose

to almost 23% of GDP last year, unchanged from 2011 as higher

oil exports were likely offset by increased imports and remittances

abroad. We expect the regional current account surplus to narrow

slightly to 19.5% of GDP this year.

GCC average* inflation


*Nominal GDP weighted average

Average* GCC current account surplus


*Nominal GDP weighted average

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UAE

2012 growth forecast revised up to 3.7%

We have revised up our 2012 growth estimate to 3.7% from

3.0% previously, on higher than projected oil output and evidence

a stronger recovery in the non-oil sectors as well. We now

estimate Abu Dhabi’s growth at 3.9% last year, up from 3.3%

previously as crude oil output rose more than 5% y/y according to

Bloomberg estimates. In Dubai, stronger than expected 1H 12

official growth estimates (4.1% y/y) combined with better than

expected PMI data in Q4 have led us to revise our growth estimate

for the emirate to 3.2%, up from 2.5% previously.

The December PMI data was particularly encouraging, with

the overall index rising to the highest level since July 2011.

Importantly, domestic demand appears to have gained momentum

in Q4 12, which bodes well for 2013. The PMI data suggests that

external demand is contributing to the expansion in the non-oil

manufacturing sector, but does not account for all of the gains.

2013 growth forecast at 3.8%

We have revised up our forecast for 2013 growth to 3.8% from

3.5% previously. Abu Dhabi’s growth is expected to slow slightly

this year, reflecting stabilization in oil production after strong

growth in this sector in 2011 and 2012. This should be offset by a

solid 5% expansion in the non-oil sectors. In Dubai, we expect

growth to accelerate to 3.9% in 2013, and we discuss this outlook

in more detail in the next section.

We expect regional demand, buoyed by strong government

spending in Saudi Arabia, Qatar and Oman to have a positive

knock-on impact on the UAE’s economy. Manufacturing and

construction companies are likely to benefit from increased

infrastructure investment in neighbouring countries, while job

creation efforts and higher salaries will likely continue to support

the UAE’s tourism and retail sectors. Non-oil foreign trade with the

GCC has also continued to grow, supporting the trade and logistics

sectors in the UAE, and offsetting weaker trade with the Eurozone

and other western trade partners.

That the UAE has likely achieved growth in excess of 3.5% in 2012

even against a backdrop of relatively low liquidity and anaemic

private sector credit growth, is surprising. In our view, this

underlines the importance of the regional economy and its

contribution to the UAE’s economic performance.

Money supply and private credit growth set to rise in 2013

Broad money supply growth slowed sharply in Q2 12, before

recovering slightly in Q3. The main driver appears to have been

an outflow of quasi money (fx and longer term dirham deposits).

Increased risk aversion due to the escalating Eurozone crisis

heading into the summer, and repatriation of foreign banks’ funds

to their ‘home’ markets may have contributed to this outflow of

deposits last year.

GDP growth

Source: National sources, Emirates NBD Research

Oil production


PMI

Source: HSBC/ Markit, Emirates NBD Research

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We expect M2 growth to reach 3.3% by end-2012, and we expect

money supply growth to accelerate modestly this year on the back

of increased confidence in the economic recovery, reaching 6.5%

by end-2013.

Private sector credit growth is likely to end 2012 at around the

same level as 2011 at 2.0% y/y. To some extent, the low level of

private sector credit growth is due to ‘crowding out’ by the public

sector. Public sector borrowing has grown by almost 20% in the

first 10 months of 2012, compared to the same period in 2011. To

the extent that public sector demand for credit eases in 2013, and

as consumer confidence continues to improve, we expect to see

private sector credit growth accelerate to 5.0% by end-2013.

Fiscal policy to remain relatively conservative

The UAE is a bit of an outlier in the region in terms of fiscal

policy. Where other GCC oil exporters have aggressively

increased spending in the wake of the financial crisis and the Arab

Spring, the UAE has had to tackle high levels of GRE debt, which

has limited its ability to sustain double digit spending growth post-

2009. Although total budget expenditure did rise by almost 20%

in 2011 (IMF estimates), this was largely due to higher ‘loans &

equity’ outflows, rather than current or infrastructure spending.

In 2013, we expect consolidated government spending to

remain at similar levels to 2012 (and 2011) in dirham terms;

AED 400bn. However, we expect current and development

spending to receive bigger shares of the budget, as funds used to

assist troubled GREs are likely to be reduced.

Inflation likely to rise slightly in 2013

Inflation in 2012 likely undershot our 0.9% forecast, as the

average year-to-November was just 0.7%. Housing costs

continued to decline on an annual basis, although the rate of

decline has slowed. Food inflation also moderated, and there was

little evidence of demand driven inflation in other components. This

is consistent with the price indices in the PMI surveys, which

suggest little pricing power on the part of manufacturers, and

stable output prices in 2H 12.

However, market data (source: Cluttons) shows housing costs in

Dubai have increased through 2012, and we expect the

disinflationary impact of housing on the CPI is likely to ease in

2013. The apparent discrepancy between ‘real time’ market data

and the housing sub-index of the CPI is due to how the data is

collected: market data captures the price of real estate sold at the

point of sale, or rental rates for new contracts as they are renewed,

whereas the CPI in any month will survey a mix of both new and

ongoing rental contracts/ housing costs. Consequently, we still

think the housing CPI could continue to decline for several more

months, despite rising market rates. As an illustration, Cluttons

data shows Dubai’s real estate prices declining on a y/y basis

since December 2008, whereas the first y/y decline in the housing

sub-index of Dubai’s CPI was in April 2010.

Overall we expect UAE inflation to accelerate to an average

2.5% in 2013.

Money supply and credit growth


Consolidated budget breakdown (AED bn)

Source: IMF, Emirates NBD Research

Inflation


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CPI Food Housing

UAE - Dubai

Manufacturing drives growth in 1H 12

The breakdown of Dubai’s 1H 12 GDP growth showed a

stronger than expected 10% y/y expansion in the

manufacturing sector, which accounts for about 14% of Dubai’s

GDP. Although tourism and hospitality sectors grabbed the

headlines in 2012 for their continued strong growth (16.1% y/y in

1H 12), restaurants & hotels account for just 4% of Dubai’s

economy. This is the main reason our previous projection for

Dubai’s growth in 2012 was just 2.5% - we expected the strongest

growth in the sectors that didn’t contribute significantly overall.

Wholesale & retail trade, the largest sector in Dubai’s economy,

expanded 3.8% y/y in 1H 12 according to Dubai Statistics, largely

in line with our expectations. While the better than expected

manufacturing growth was the main driver of our 2012 growth

forecast upgrade to 3.2%, there were other contributing factors as

well.

Non oil foreign trade held up better than expected into the

third-quarter, with Dubai Customs announcing that the total value

of trade rose 12.8% y/y in January-October 2012. Both exports

and imports showed double digit growth. Although the

construction sector declined by -2.5% y/y in 1H 12, the raft of

new projects announced in 2H 12 suggests that this sector may

have bottomed. Real estate & business services posted the first

annual gain in value added since 2008, reflecting the improved

sentiment towards and recovery in real estate prices in Dubai.

Growth forecast to accelerate to 3.9% in 2013

Looking to 2013, we expect many of these sectors to gain

momentum, pushing Dubai’s overall growth to 3.9%.

Manufacturing, tourism and hospitality is likely to continue to

benefit from regional demand. If some of the new projects

announced get underway during the course of this year, we expect

the construction sector to post the first positive growth since

2008.

Although there have been concerns about the impact of recently

announced curbs on mortgages, most of the demand for Dubai’s

residential real estate has been from cash and foreign buyers, who

are unlikely to be deterred by the absence of mortgage finance.

We thus expect to see continued recovery in Dubai’s real

estate sector, albeit at a slower, more sustainable pace than

we saw in 2012.

We expect non-oil trade to continue to expand in 2013,

notwithstanding relatively weak growth in the US and possible

recession in Europe. China’s growth is expected to accelerate to

8.1% in 2013 (Bloomberg consensus) and it is a top-three trading

partner for the UAE. Trade with the GCC is also likely to grow on

the back of stronger public sector investment and consumer

spending in Saudi Arabia, Qatar and Oman.

GDP growth


Real estate price growth

Source: Cluttons via Bloomberg, Emirates NBD Research

Trade growth (value)

Source: Federal Customs Authority, Emirates NBD Research

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Imports

Saudi Arabia

Growth expected to slow to 5.4% in 2013

Official estimates put real growth at 6.8% last year, much

higher than our 5.8% forecast. 2011 GDP growth was also

revised up from 7.1% to 8.5%, most likely due to higher estimates

of hydrocarbon growth. Oil production contributed significantly to

GDP growth in 2012 as well, with expansion of 5.5% in the

hydrocarbon sector last year. However, government spending was

the key driver of growth, and this is reflected in the 10.3% growth

in construction and the 10.7% growth in transport, storage &

communications sectors. Non-oil manufacturing expanded 8.3%

last year, while the utilities sector grew 7.3%.

Looking ahead to 2013, we expect government spending to

continue to underpin growth. This year’s budget provides for SAR

820bn in government spending, broadly similar to last year’s

spend. However, the government usually overshoots its budget,

and we expect spending to reach SAR 984bn in 2013, a 15%

increase on 2012. It is on this basis that we have revised up

our forecast for the Kingdom’s GDP growth to 5.4% in 2013,

from 4.8% previously.

The main reason for the slowdown in growth this year is our

outlook for oil production. Saudi Arabia’s crude oil output rose

almost 12% in 2011 and a further 5.8% in 2012, according to

Bloomberg estimates. Average oil production last year stood at

9.8mn bpd, the highest since 1981. As outlined in our overview

section, our base case is for GCC oil production to remain

unchanged this year. Consequently, we do not forecast any

growth in Saudi Arabia’s hydrocarbon sector in 2013.

Inflation to rise slightly in 2013

Consumer inflation was lower than we expected in 2012,

averaging around 4.1%, down from 4.9% in 2011. The main driver

was lower housing inflation, which declined to 2.3% y/y in

November 2012. We expect inflation to pick up slightly to average

4.5% in 2013, as strengthening domestic demand starts to be

reflected in higher services prices.

Fiscal and external balances to remain healthy

Despite the substantial increase in government spending in recent

years, the budget has continued to post surpluses. We expect the

budget surplus to narrow to 7.0% of GDP this year from an

estimated 14.2% in 2012, as oil prices are likely to decline slightly

and oil output is expected to remain stable.

We expect the current account surplus is set to remain healthy at

20% of GDP in 2013, and SAMA’s net foreign assets – which

stood at USD 634bn at the end of November – are likely to rise

further, adding to the substantial cushion against oil price shocks.

GDP growth

Source: Haver, National sources, Emirates NBD Research

Oil production


PMI

Source: HSBC/ Markit, Emirates NBD Research

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Qatar

2012 growth driven by non-oil sectors

We retain our estimate for 2012 real growth at 6.7%, with most

of this coming from the non-hydrocarbon sector. Data shows

the transport & communication sector expanded 13.4% in the first

three-quarters of 2012, followed by manufacturing (12.1%),

building & construction (8.5%) and utilities (8.5%). Government

services, which alone accounts for more than 10% of Qatar’s real

GDP, grew 8.4% in Q1-Q3 2012, reflecting the strength of

government spending. Financial & real estate services, which

account for another 10% of Qatar’s economy, expanded 8.0% over

the same period.

The key oil and gas sector, which still accounts for more than

40% of Qatar’s GDP, grew just 1.5% in the first three-quarters

last year, reflecting the moratorium on new LNG capacity and an

almost 6% decline in crude oil production last year, compared with

2011.

We expect this trend to continue in 2012, with government

spending and investment underpinning growth of 5.2%. We

expect no contribution to growth from the hydrocarbon sector in

2013.

Inflation set to accelerate in 2013

Consumer inflation remained relatively low in 2012; we expect

average CPI reached 2.0%. This was largely due to housing costs,

which continued to decline on an annual basis through September

2012, offsetting higher services inflation. However, rents appear to

have picked up in H2 – rising 0.7% m/m on average between July

and November 2012. We expect housing costs to continue to

recover this year, pushing average CPI up to 4.5% in 2013.

Public sector credit growth remains robust

After peaking at close to 100% y/y in May 2012, public sector

credit growth has slowed through November, but remains at a high

level. Private sector credit growth has also slowed in 2H 12,

reaching 11.5% y/y in November, from 21.6% y/y in January 2012.

We expect to see private sector credit growth accelerate during the

course of this year, provided public sector borrowing continues to

slow.

In contrast, money supply growth has accelerated in 2H 12,

with M2 growth reaching almost 30% y/y in November. Quasi

money growth has recovered strongly, driven mainly by increased

FX deposits in 2H 12. Government deposits also rose in 2H 12,

most likely to fund public spending. We expect money supply

growth to slow off the high base and in-line with slower GDP

growth, reaching a still-high 15.5% y/y by December 2013.

Continued public sector spending is likely to underpin the growth in

money supply this year.

GDP growth


Inflation

Source: Haver Analytics, IMF, Emirates NBD Research

Credit growth

Source: Qatar Central Bank, Emirates NBD Research

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Food

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Public sector

Private sector

Kuwait

2012 growth estimate revised up on oil output

We have revised our estimate for Kuwait’s real GDP growth in

2012 up to 6.0% from 5.3% previously. The change is entirely

due to higher than expected estimates for Kuwait’s oil production

last year. Bloomberg data shows oil output rose a massive 12.6%

over the 2011, reaching an average 2.8mn bpd. This is the second

year running that Kuwait’s oil production has exceeded that of the

UAE; prior to 2011, the last time that Kuwait produced more oil

than the UAE was in 1984.

But growth is set to slow sharply in 2013

However, the outlook for 2013 is less rosy. Our base case

scenario assumes that GCC oil production is unchanged this year,

and on this basis, growth will need to come from the non-oil

sectors.

In Kuwait’s case, political uncertainty and the stalemate between

the executive and parliament has hampered the government’s

ability to execute the budget and implement its economic reform

program, including much needed infrastructure investment. As an

example, government spending for the first 8 months of the current

fiscal year amounted to KWD 6.9bn, or just 32% of the full year

budget.

However, the political uncertainty looks set to continue for the time

being, with the Constitutional Court still to rule on whether the new

electoral system (introduced for the last elections in December

2012) is valid. Against this backdrop, we expect non oil growth

to be relatively modest at 4.5% in 2013, and overall GDP

growth to slow to 3.0%.

Inflation

We expect inflation to average 2.9% in 2012, down from 4.8% in

2011 on the back of lower food and housing inflation. In 2013, we

expect inflation to accelerate modestly to 3.5%.

Money and credit growth to remain modest

We forecast money supply growth slowed to 4.5% at end-2012

from 8.2% end-2011. Despite strong growth in M1 (cash in

circulation and demand deposits), quasi money growth slowed

sharply towards the end of last year. We expect M2 growth to

remain in single digits in 2013.

Private sector credit growth accelerated in 1H 12, before stabilizing

at just under 4% in Q4. Public sector borrowing continued to

contract on an annual basis from July-November 2012, as high oil

receipts negated the need for government borrowing, especially

when coupled with poor budget execution. Despite the central

bank’s efforts to boost borrowing, we expect private sector credit

growth to remain constrained until there is some clarity on the

political front.

GDP growth


Oil production




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Private sector

Government credit

Oman

2012 GDP growth higher than forecast

Official estimates put real growth at 8.3% in 2012, significantly

higher than our 5.2% forecast. Hydrocarbon growth was likely

higher than the 3.0% we had penciled in; Energy Intelligence

Group estimates showing average oil output in January-November

at 922,000 bpd, 4.4% higher than average 2011 output. However,

the official estimates imply non-oil growth of around 9% in real

terms, well above the 5.9% we had forecast for 2012.

…supported by expansionary fiscal policy

Government spending was likely a key driver of domestic

demand in 2012. Preliminary budget estimates show total

spending of OMR 13.0bn, 20% higher than we had estimated and

almost 30% higher than budgeted. The authorities created 36,000

jobs for nationals last year according to Finance Minister Balushi,

as well as spending on infrastructure and welfare programs.

Despite the overspend, the Finance Minister estimated a budget

surplus of OMR 1.0bn in 2012, as oil and gas revenues were

higher than projected. We estimate oil and gas revenues came in

at OMR 11.6bn in 2012, which suggests that ‘other’ revenues to

the budget increased sharply in 2012 (over OMR 2.3bn by our

estimates) compared with the average of the previous 5 years

(OMR 1.55bn). Some of this ‘other’ revenue may have been funds

promised by the GCC to Oman and Bahrain in the wake of the

Arab Spring.

We expect fiscal policy to continue to underpin non-oil growth

in Oman in 2013. The budget provides for OMR12.9bn in total

expenditure, similar to 2012. The budget assumes an oil price of

USD 85 per barrel for this year, and thus projects a deficit of -OMR

1.7bn. However, we expect oil revenues to be substantially higher

than this, and we forecast a smaller deficit of -OMR 440mn, which

should be easily financed through accumulated savings and/ or

loans.

Growth likely to slow in 2013

We have upgraded our 2013 growth forecast for Oman to

4.7%, from 4.0% previously. This adjustment takes into account

the bigger than expected budget for this year, which will contribute

to some 56,000 new jobs being created, according to the Finance

Minister. We expect oil production to increase by just 1% in 2013,

in line with government forecasts.

Inflation likely to remain broadly stable

Consumer inflation has averaged 3.0% in Jan-Oct 2012, lower

than 2011’s 4.0% average CPI. As the authorities are likely to

move to contain sharp increases in food, housing & utilities and

transport costs (which account for around three-quarters of the CPI

basket), we expect inflation to rise only slightly to 3.5% in 2013.

GDP growth


Oil production

Source: EIG via Bloomberg, Emirates NBD Research

Budget balance


13.1

3.9

5.05.5

8.3

4.7

0

5

10

15

2008 2009 2010 2011 2012e 2013f

% y

/y

820

840

860

880

900

920

940

960


Th

. B

pd

13.2

0.5

5.46.3

3.2

-1.3

-5

0

5

10

15

2008 2009 2010 2011 2012e 2013f

% G

DP

Bahrain

Growth expected to slow to 2.8% in 2013

Bahrain’s real GDP growth in the first three quarters of 2012

averaged 4.4%, driven by the recovery in manufacturing and

growth in government services. These two sectors account for

more than a quarter of Bahrain’s GDP. Mining & Quarrying, which

accounts for almost 20% of Bahrain’s GDP, contracted for most of

2012. The financial sector, which also accounts for around 20% of

Bahrain’s GDP, expanded just 3% in the first three quarters of last

year. Although hotels and restaurants saw a substantial 28%

average growth in Q1-Q3 2012, this sector accounts for less than

3% of total GDP.

Looking ahead to 2013, we expect growth to slow to 2.8%

from an estimated 3.8% in 2012. Government spending will

likely remain a key driver of growth, as it is elsewhere in the

region. Bahrain’s 2013 budget provides for BHD 3.45bn in

spending next year, largely in line with our spending estimates for

2012. However, with oil prices expected to be slightly lower in

2013 compared with 2012, and oil production likely to moderate,

we expect the budget deficit to widen to around -5% of GDP this

year from an estimated -2.7% of GDP in 2012. We do not expect

financing the deficit to be problematic, as other GCC states have

promised substantial financial aid to both Bahrain and Oman over

the next decade.

Inflation returned to positive territory in 2012

Consumer inflation recovered from the low 2011 average of -0.4%,

which had been a direct consequence of sharply declining housing

costs in the wake of the political turmoil in Q1 2011. We estimate

average inflation in 2012 of 2.8%, as housing costs normalized.

Other components of the CPI showed little inflationary pressure,

and we expect CPI to average 3.2% in 2013.

Money and credit growth slowed in 2H 12

After a strong upward trend in both money supply and credit

growth from Q2 2011, the slowdown in both indicators in 2H 12 is

at least partly due to a high-base effect. We expect broad money

supply growth to slow to 5.2% y/y by December 2012, before

picking up slightly to end 2013 at 6.0%. We expect private sector

credit growth to slow to 7.0% by end-2013 from 9.1% at end-2012.

GDP growth


Inflation




6.2

2.5

4.3

1.9

3.8

2.8

0

1

2

3

4

5

6

7

2008 2009 2010 2011e 2012f 2013f

% y

/y

-20

-16

-12

-8

-4

0

4

8

12


% y

/y

Headline CPI Housing Food

0

10

20

30

40

50

60


% y

/y

Money supply

Private sector credit

Public sector credit

Key Economic Forecasts: UAE

National Income 2009 2010 2011 2012f 2013f

Nominal GDP (AED bn) 953.9 1042.7 1243.8 1310.2 1362.4

Nominal GDP (USD bn) 259.9 284.1 338.9 357.0 371.2

GDP per capita (USD) 31697 34379 40208 41522 42329

Real GDP Growth* (% y/y) -4.8 1.3 4.2 3.7 3.8

Abu Dhabi* -5.9 3.0 5.0 3.9 3.7

Dubai* -2.4 2.8 3.4 3.2 3.9

Monetary Indicators (% y/y)

M2 9.8 6.2 5.0 3.3 6.4

Private sector credit 0.3 0.6 2.1 2.0 5.0

CPI (average) 1.6 0.9 0.9 0.7 2.5

External Accounts (USD bn)

Exports 192.3 211.9 279.3 303.8 314.0

o/w hydrocarbons 68.2 74.7 111.6 118.3 111.7

Imports 149.7 161.4 197.8 216.8 227.5

Trade balance 42.6 50.5 81.5 87.0 86.5

% GDP 16.4 17.8 24.0 24.4 23.3

Current account balance 9.2 9.1 33.3 36.2 34.3

% GDP 3.5 3.2 9.8 10.1 9.2

Fiscal Indicators (% GDP)

Consolidated budget balance -12.8 -2.2 3.1 4.7 2.8

Revenue 26.8 30.0 35.4 35.2 32.2

Expenditure 39.6 32.2 32.3 30.5 29.4

* Abu Dhabi’s real growth data are Emirates NBD estimates and forecasts. Dubai’s real growth data are sourced from Dubai Stat istics to 2011, with

Emirates NBD forecasts for 2012 and 2013. UAE real growth data are sourced from NBS to 2011, with Emirates NBD forecasts for 2012 and 2013.

Source: Haver Analytics, IMF, National sources, Emirates NBD Research

Key Economic Forecasts: Saudi Arabia


Nominal GDP (SAR bn) 1412.6 1693.5 2511.4 2727.4 2555.3



Real GDP Growth (% y/y) 0.1 5.1 8.5 6.8 5.4

Hydrocarbon -7.8 2.4 10.5 5.5 0.0

Non- hydrocarbon 3.5 6.2 8.0 7.2 7.5


M2 10.7 5.0 13.3 9.5 9.8


CPI (average) 5.1 5.4 5.0 4.1 4.5


Exports 192.2 251.0 364.6 395.9 380.7

o/w hydrocarbons 163.1 215.2 317.6 344.2 323.9

Imports 86.4 96.7 119.1 136.9 150.6

Trade balance 105.8 154.3 245.5 258.9 230.1

% GDP 28.1 34.2 36.7 35.6 33.8


% GDP 5.6 14.8 23.7 23.4 19.9

SAMA's Net foreign Assets 405.3 440.4 535.2


Budget balance -6.1 5.2 12.7 14.2 7.0

Revenue 36.1 43.8 49.6 45.4 45.5

Expenditure 42.2 38.6 36.9 31.3 38.5

Public debt 15.9 9.9 6.3 3.6


Key Economic Forecasts: Qatar


Nominal GDP (QAR bn) 356.0 463.5 630.9 669.5 710.2




Hydrocarbon 4.5 28.8 15.7 0.0 0.0

Non- hydrocarbon 16.6 8.3 10.5 6.8 9.0


M2 16.9 23.1 17.1 27.0 15.5


CPI (average) -4.9 1.6 1.9 2.0 4.5


Exports 46.9 79.1 113.3 114.1 109.6

o/w hydrocarbons 42.3 72.6 104.3 104.0 99.6

Imports 22.5 27.2 29.4 32.6 36.1

Trade balance 24.5 51.8 84.0 81.6 73.5

% GDP 25.0 40.7 48.4 44.3 37.7


% GDP 10.2 26.3 32.2 29.6 25.2

Total external debt 74.0 100.9 119.1 124.4 131.8

% GDP 75.7 79.2 68.7 67.6 67.5


Budget balance 15.2 2.9 8.6 10.0 7.4

Revenue 47.5 33.6 34.9 38.4 36.2

Expenditure 32.3 30.7 26.3 28.4 28.8


Key Economic Forecasts: Kuwait


Nominal GDP (KWD bn) 30.5 34.4 44.4 48.3 49.6


GDP per capita (USD) 30.5 34.4 44.4 48.3 49.6

Real GDP Growth (% y/y) -7.8 7.9 5.7 6.0 3.0

Hydrocarbon -14.7 1.7 11.0 10.0 0.0

Non-hydrocarbon -4.0 11.1 4.5 4.0 4.5


M2 13.2 3.0 8.2 4.5 6.5


CPI (average) 4.0 4.0 4.8 2.9 3.5


Exports 54.4 67.6 104.1 118.4 108.4

o/w hydrocarbons 48.9 61.8 96.6 110.2 100.6

Imports 18.5 20.1 21.9 23.3 24.9

Trade balance 35.9 47.6 82.2 95.1 83.5

% GDP 33.9 39.7 51.2 55.2 47.6


% GDP 26.7 31.9 44.0 48.2 40.7


Budget balance 21.1 13.9 29.8 21.7 16.7

Revenue 58.0 61.1 68.1 60.4 57.0

Expenditure 36.9 47.2 38.3 38.8 40.3


Key Economic Forecasts: Oman


Nominal GDP (OMR bn) 18.6 22.8 27.9 31.0 32.8





M2 4.7 11.3 12.2 13.4 11.2


CPI (average) 3.7 3.2 4.0 3.1 3.5


Exports 27.7 36.6 47.2 50.7 50.3

o/w hydrocarbons 18.1 25.3 33.4 36.7 35.7

Imports 16.1 17.9 21.5 24.8 26.0

Trade balance 11.6 18.8 25.6 25.9 24.3

% GDP 24.1 31.7 35.3 32.1 28.5

Current account balance -0.6 5.9 10.3 9.4 7.3

% GDP -1.2 9.9 14.2 11.7 8.6


Budget balance 0.5 5.4 6.3 3.2 -1.3

Revenue 40.3 39.8 44.7 45.1 38.2

Expenditure 39.8 34.4 38.4 41.9 39.6


Key Economic Forecasts: Bahrain


Nominal GDP (BHD bn) 8.62 9.67 10.90 11.35 11.86





M2 4.5 13.0 5.2 5.2 6.0

Private sector credit -0.7 6.2 15.0 9.1 7.0

CPI (average) 2.8 2.0 -0.4 2.8 3.2


Exports 11.9 13.6 19.7 20.4 19.7

o/w hydrocarbons 8.9 10.2 15.5 16.0 15.1

Imports 9.6 11.2 12.1 13.2 12.8

Trade balance 2.3 2.5 7.5 7.2 6.9

% GDP 9.9 9.6 26.0 23.7 21.9


% GDP 2.4 3.0 11.2 7.8 6.7


Budget balance -4.3 -4.8 -0.3 -2.7 -4.9

Revenue 19.8 22.5 25.9 27.2 24.2

Expenditure 24.1 27.3 26.2 30.0 29.1


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