GCC economies are expected to slip into a recession in 2009 as a result of the severe deterioration in the global economic scene, said the National Bank of Kuwait (NBK) in a report on Saturday. The report entitled “GCC: Fiscal stimulus and reforms are optimal choice under current circumstances,” said however, that it was fortunately that GCC economies were “well positioned to face the storm.” “The dominance of their public sectors in economic activity should provide a measure of stability, including on the employment (of nationals) front. More importantly, all GCC countries have the capacity to pursue expansionary fiscal policies without putting pressure on their financial positions, thanks to the large surpluses of previous years,” it said. The report added that the rationale for using fiscal stimulus “is to have higher government spending offset the decline in private consumption and investment. The latter have been negatively impacted by the bursting of the equity and real estate market bubbles, resulting in massive wealth destruction. In current circumstances, monetary measures alone are likely to prove inadequate to stimulate private demand.” The report noted that most GCC governments had announced a range of fiscal stimulus measures to deal with mounting economic challenges. The size of the stimulus ranges between 3.0 percent in Bahrain and 9.0 percent in Saudi Arabia as a percent of 2008 non-oil GDP. Kuwait appears to be an exception so far, with draft budget figures showing a decline. There may still be room for additional appropriations in the budget given the intensifying calls on the government to use this tool to shield its economy from the repercussions of the global crisis, including the governor of the Central Bank of Kuwait and the Chamber of Commerce and Industry . Even those governments that plan to jack up spending may need to do more to defend recent economic achievements, especially Oman and Dubai. “The dominance of the public sector in economic activity is a mixed blessing under current circumstances, as it makes expansionary fiscal policies more potent. For that matter, this is also an opportune time for GCC governments to move ahead with liberalization and other economic reforms to achieve their long
