State spend trumps dampened private sector
Private sectors may be wary of the regional unrest, but booming energy industries are expected to offset this, especially with aggressive state spending.
April 5, 2011 4:10 by Reuters
But not all the capital flight from Bahrain, estimated at tens or possibly hundreds of millions of dollars, left the Gulf; some of it simply moved to more stable countries in the region, benefiting them in the short term at least.
Debt insurance costs for Dubai, viewed as a safe haven in the Gulf, are tighter than they were before the unrest at 389 basis points, down from February’s three-month high of 459 bps.
Meanwhile, all of the Gulf economies are benefiting from the rise of U.S. crude oil prices to a 2-1/2-year high above $108 a barrel. A $10 increase in the expected average oil price faced by Saudi Arabia to $92 per barrel should contribute $43 billion to the country’s nominal GDP this year, Banque Saudi Fransi estimates; that is roughly a tenth of last year’s GDP.
In addition, Saudi Arabia and other countries are boosting state spending aggressively to ease social pressures. High oil prices give them more to spend, but in any case they are willing to run down financial reserves if necessary to head off the biggest political threat to their stability in over a decade.