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GCC states can withstand global economic turbulence: Report

business Updated: Aug 16, 2011 12:04 IST
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The six Arab states constituting the Gulf Cooperation Council (GCC) are well positioned to stay afloat amid the current turbulence in the global economy, according to a bank report.

According to QNB Capital, the current economic turmoil in the US and Europe may have short-term impacts on the GCC --comprising Oman, Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates -- but the longer term impact will be limited because the economic fundamentals in the region remain strong. Finding that oil prices have been falling, especially due to global uncertainties, it said oil prices are still strong by historic standards and it "does not expect there to be a sustained decline in oil", said the report.

Moreover, GCC governments use conservative oil prices in their budget assumptions and, before the current turmoil struck, were on course to post large fiscal surpluses this year, according to QNB Capital. "The GCC countries' fiscal surpluses and low levels of public debt mean that even if oil prices were to decline, this would not seriously disrupt their spending plans.

This is important, because government spending is the foundation of the region's non-oil economy," it said. Although a weaker dollar, to which GCC currencies are pegged, could increase the cost of imports and boost inflation in the region, it said inflation is currently low in most countries.

QNB Capital does not expect the impact from the weaker dollar to be "significant". "The GCC is intimately connected to the US, Europe and Asia and economic and market turbulence there will continue to reverberate in the Gulf. However, the economic fundamentals in the region are still strong. "Consequently, it is better placed than most other regions to navigate safely through a turbulent global economy," it said. Market volatility is likely to continue for some weeks as investors reassess the risk and the trading sentiment in GCC equity markets would continue to be influenced by moves in global markets, it said.