Gulf Arab economies could shrink this year due to oil price declines, but liquidity is adequate and credit still growing, central bankers in the world's top oil-exporting region said on Wednesday. Sultan Nasser Al-Suweidi, the United Arab Emirates central bank governor, told a banking conference that he did not expect oil prices to average more than $40-44 per barrel in 2009, a far cry from the highs near $150 in July that marked the peak of an economic boom across the six-member Gulf Cooperation Council. “This will have a great impact on the economies of the Gulf region... This will definitely influence the economy,” Suweidi said. “A contraction is a possibility in all GCC countries.” Oil prices have collapsed in recent months, hitting revenues across the Gulf. A recent rally looked to be petering out on Wednesday, with oil faltering towards $53 a barrel. The oil price boom had enabled Gulf states to pour windfall revenues into projects designed to reduce their reliance on the volatile commodity, but Oman, Bahrain and Qatar said on Tuesday they expected growth rates to halve this year while the UAE has already said it was looking at a possible economic contraction. A Reuters poll this month found that real growth in all Gulf oil exporters except Qatar could slow to about 2 percent. Echoing growing concerns that low oil prices pose an economic challenge, UAE President Sheikh Khalifa Bin Zayed Al-Nahayan told a Qatari newspaper that $70-75 a barrel would be a fair price for oil. While they amassed surplus revenues from oil exports while prices were high, Gulf Arab states whose currencies are pegged to the dollar have also suffered from the economic upheavals in the US. High inflation exacerbated by a weak dollar prompted calls for Gulf countries to drop their pegs in 2007 and Kuwait did so in May of that year, while the decline in US stock markets hit Gulf foreign investments. Confidence in dollar But Saudi Arabia's central bank governor said on Wednesday the world's top oil exporter still believed the greenback was the appropriate currency peg at this time and was confident in the US handling of the financial crisis. “We have confidence that the US is throwing all the available weapons at the problem to stabilize the financial system,” Muhammed Al-Jasser said. “We have not seen anything to make us worry about our ... assets in dollars at this time but of course this is a crisis in motion and we always have to be prudent...” Gulf states have taken a slew of measures to defrost credit markets, cutting interest rates, guaranteeing bank deposits and offering extra liquidity to banks in an effort to keep economies moving as oil revenues fall and world trade flows decline. Talks on new world reserve currency ‘legitimate', says IMF chief: P14Gulf central bankers renewed assurances on Wednesday that there was adequate liquidity in the financial system, saying that slowing economic activity and uncertainty was behind sluggish credit growth. “There is a lot of liquidity in Kuwait. The central bank of Kuwait is mopping up the surplus of the liquidity,” Kuwait's central bank governor, Sheikh Salem Abdul-Aziz Al-Sabah, said. “There is fear from the market among banks to extend credit because of the general situation. They are still sitting and waiting... The numbers indicate there is an expansion in credit but at a low rate.” Both the Qatar and Saudi central bank chiefs said credit growth was around 15 percent in their respective countries in February compared with the same month last year. “We should not exaggerate the problem of liquidity in the Gulf,” said Jasser. “There is still very healthy growth in credit.” The UAE has been among the hardest hit by the global financial crisis as a property boom in Dubai, one of its seven members, turns to bust. It has taken a number of measures to pump liquidity into the financial sector but had no immediate plans to cut interest rates, Suweidi said. The UAE was now looking at ways to bridge loan-to-deposit ratios and has given banks until the end of June to raise their capital adequacy ratios to 11 percent, he added.
