"GCC growth is likely to revert to its longer-term norm while becoming more broad-based," Dr Jarmo T. Kotilaine, chief economist, National Commercial Bank, said. He noted that relative stability in the hydrocarbons and public sectors is likely to go hand in hand with a continued rebound in the private sector as bank lending recovers more or less across the region. The end result will be lower headline growth as compared to last but this should not distract from the consolidation of last year's progress and the addition of new dimensions to growth. Overall, even if the global economic environment remains highly uncertain, the GCC economies are on track for a strong year in 2012." GDP growth for the GCC region as a whole is likely to be around 4 percent. The regional budgets announced so far point to a great deal of continuity with high government spending and an increased emphasis on the inclusive growth paradigm that emerged last year. In addition to the traditional priorities on education, health care, and infrastructure, far more resources are now being devoted to housing, job creation, and social spending. Both Saudi Arabia and Oman are committed to maintaining public sector expenditure at historically high levels, whereas the UAE is once again embarking on some fiscal retrenchment, Kotilaine said. Especially Dubai has signaled its determination to cuts its deficit at a time when the broader public sector is still rationalizing the high levels of leverage amassed during the boom years. By contrast, Abu Dhabi has indicated that a number of landmark infrastructure projects that were delayed are once again on track. At the same time, the monetary environment looks likely to remain fairly benign, partly supported by the likelihood of an extended period of near-zero rates in the US. Money supply growth is robust and credit growth is accelerating in much of the region. It is now in or near the double digits YoY in most regional economies. Saudi growth has been particularly encouraging, relying entirely on lending to the private sector. Bank credit in Kuwait has been held back by politically induced delays to government spending while the UAE is affected by expatriate remittances and regulatory efforts to tighten credit standards. The inflation outlook is generally stable and likely to remain broadly unchanged, although some upward pressure has resulted from increased government spending. The main risks to this benign picture are exogenous in nature, even though the beginning months of the year have seen impressive market rallies the world over in the face of diminished risk aversion. The European situation seems to have stabilized for now thanks to the latest Greek rescue deal but the structural weaknesses and vulnerabilities remain severe and renewed deterioration later in the year highly likely.
