DUBAI, (AFP) – The oil-rich Gulf economies are recovering along with crude prices nearly two years after the global financial crisis hit the region, but Dubai, stricken by its debt, is still picking up the pieces.
When the financial woes struck the desert states in the autumn of 2008, Dubai’s overheated property bubble burst after five years as the emirate’s main growth engine, and neighbouring countries struggled as oil prices tumbled.
Since crashing to lows of around 30 dollars per barrel in early 2009, from more than 140 dollars the previous year, oil prices have made a solid recovery, hovering at around 75 dollars as the global economy has started to pick up.
“Gulf countries are very much integrated in the world economy and are doing sufficiently well under the prevailing circumstances,” said Eckart Woertz, the head of economics at the Gulf Research Centre.
“We should not forget that the region overall is a capital net exporter and has low levels of government debt to GDP (gross domestic product) in international comparison,” he said.
Woertz argued that this helped to explain the minimal impact on the Gulf region of Dubai’s crisis, even with the emirate still struggling to sort out the burgeoning debts of Dubai World, its largest conglomerate, and boost economic growth.
The United Arab Emirates’ economy contracted by 0.7 percent in 2009, according to the International Monetary Fund, due to the “drag” of Dubai’s real estate sector, which is expected to continue this year.
Simon Williams, chief economist at HSBC Middle East, argued that Dubai’s lack of oil put it in a weaker position to fend off the crisis, but he also emphasised the risks resulting from the emirate’s greater openness to global markets compared with its more conservative neighbours.
“Dubai?s structure is very different from other GCC (Gulf Cooperation Council) economies. It is not an oil producer, it took on a high level of leverage and is more integrated into the global economy,” he said.
“That is why the impact of the crisis was larger than in countries with hydrocarbons and more insular financial systems,” he told AFP.
The Dubai World group, which is now negotiating a restructuring of some of its debt, rattled global markets in November 2009 when it said it might need to stall payments on some 26 billion dollars of debt, raising fears of a sovereign default.
Some analysts have put Dubai’s total debt at over 100 billion dollars.
But an initial spillover of the debt crisis, manifested mainly in a sharp drop in regional stock markets, “had largely dissipated by end-2009,” IMF economists said in July.
They predicted 4.3 percent growth in the non-oil economies of the six GCC countries this year, on the back of expansionary fiscal policies, together with an estimated 4.8 percent rise in oil output in line with global recovery.
The IMF in May projected overall growth in the Gulf states of 4.9 percent and 5.2 percent in 2011, after a meager 0.8 percent in 2009, with projections based on an average oil price of 80 and 83 dollars a barrel this year and next.
However, Williams says the total GCC growth figures are misleading because they are inflated by Qatar’s disproportionately high growth rate.
“The 2010 average growth figure for the region is inflated by the pace of expansion in Qatar which is driven by the LNG export sector,” he said.
The IMF had forecasted a whopping 18.5 percent and 14.3 percent growth in 2010 and 2011 respectively in the gas-rich emirate.
“If you exclude (Qatar growth), or just look at domestic demand, the number falls. It certainly stands below pre-crisis levels, and is weaker than many other emerging markets,” Williams added.
The financial crisis also appears to have put on the back burner plans for further Gulf economic integration, and a much-awaited monetary union in particular.
“In the pre-crisis period I could see integration building its own momentum, primarily through a pick up in capital flows. Since the crisis though … I’m certainly not sensing much appetite for the single currency,” Williams said.
The planned union appears already crippled, with heavyweights Kuwait and UAE, as well as Oman, opting to stay out.