Real GDP across the GCC countries is likely to show a growth of about 5 percent in 2011 then further improving to 5 percent-7 percent in 2012, Kuwait Financial Centre (Markaz) said Wednesday in its semi-annual report "What to expect in 2011". Growth in 2011 has been driven by spiking crude oil prices at the beginning of the year coupled with some return in private credit and broad money growth in addition to increased government spending. Growth in Saudi Arabia is expected to show a surge of 7.5 percent in 2011 due to high oil revenues. However, this is expected to fall to about 3 percent in 2012. Kuwait GDP growth is expected to remain stable at about 5 percent for 2011-2012. Qatar, which has had the world's highest growth rates over the last few years is expected to show another year of double digit growth at 20 percent for 2011 before dropping to the more sustainable 7 percent in 2012. Both Saudi Arabia and Kuwait saw jumps in inflation during 2011 due to government grants and subsidies. According to International Monetary Fund, CPI is expected to show an increase of 6 percent for each country in 2011. This should moderate in 2012 as economic growth slows, coming in at 5.6 percent for Saudi Arabia and 3 percent for Kuwait, Markaz said. However, the GCC's market outlook for the second half is largely "neutral" as the political turmoil which swept the region at the beginning of the year brought down all markets and proved a drag on earnings, Markaz said. A neutral view of the markets was adopted due mainly to muted earnings growth and lackluster market liquidity and activity, the added. Except for Abu Dhabi and Qatar which kept the positive outlook for the second half due to positive economic growth and earnings potential, the rest in the region received neutral outlook. The factors considered in determining the outlook for the rest of 2011 include the economy, valuation attraction, earnings growth potential, investor sentiment, geopolitical developments, and market liquidity. Saudi Arabia maintained a neutral outlook on due to moderate economic activity (especially inflation and the fiscal balance) in addition to moderate earnings growth. Nonetheless, positive factors arose in valuation and market liquidity which has been picking up. The 2011 Saudi fiscal budget is expected to run a deficit of $10 billion, with spending forecasted at $154.7 billion (7 percent lower than actual 2010 expenditures of $167 billion). The budget is expected to show increased infrastructure spending. The Kingdom's $385 billion, 5-year development plan is expected to spur economic activity by encouraging construction/real estate projects, which in turn should spur lending by banks. The program includes housing, ports, and upgrading the educational system. Additionally, the government has ramped up spending on social programs and Saudization plans. Consequently, the fiscal balance is expected to drop from 13 percent of GDP in 2011 to 9 percent in 2012. Corporate earnings expected to be flat in 2011 versus a 30 percent growth in 2010, largely driven by commodities. Support is expected to come from the banking sector, which are estimated to grow at 10 percent in 2011, while slower growth in telecoms may be a drag on overall earnings. Investor sentiment (as measured by Bayt.com) was up 13 percent as of March 2011, while the geopolitical outlook (as measured by EIU) remains stable despite some signs of unrest at the beginning of the year. The Saudi market liquidity also continues to rise. Value traded came in at $155 billion in first half of 2011, a 28 percent Y-o-Y growth, which would translate to over $300 billion if the pace keeps up to the end of the year. Kuwait likewise received neutral outlook due to poor market conditions, more muted earnings growth and continued weakness in market liquidity. The Kuwaiti economy is expected to grow by 5.3 percent in 2011, following a growth of 2.3 percent in the previous year. Qatar maintains a positive outlook, owing to its high economic growth prospects, healthy banking sector and heavy government support in addition to increasing liquidity. The economy is expected to show double-digit growth at 20 percent in 2011. Oman was lowered from Positive to Neutral due to the political situation which impacted corporate earnings, sentiment and geopolitical perception.
