State spend trumps dampened private sector

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

Economists have cut their growth forecast for Bahrain this year to 3.4 percent from 4.2 percent predicted in December, and their forecast for Oman to 4.1 percent from 4.6 percent, according to the poll. But even here, a slight improvement is expected in 2012.

AID

One supportive factor for Bahrain and Oman is that the richer Gulf countries, eager to prevent political unrest from spilling into their territory, are providing aid to the hardest-hit economies.

Saudi Arabia and other wealthy neighbours have pledged $10 billion in aid to Bahrain and the same amount to Oman over the next 10 years to improve housing and social welfare.

Governments are hoping that such spending will maintain comfortable levels of economic growth until political unrest abates and private sector activity regains momentum, perhaps later this year.

However, a private sector revival may not in some countries be enough to offset a possible slowdown in government stimulus next year — esepcially if oil prices come down.

“I am expecting next year’s (Saudi) GDP growth to decline because I do not think they can sustain such high spending and constantly announce such extraordinary measures,” said John Sfakianakis, chief economist at Banque Saudi Fransi.

(Reported by By Martin Dokoupil, Additional reporting by Erika Solomon; Editing by Andrew Torchia)

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Tags: banking and finance, Banque Saudi Fransi, debt, Dubai debt, Energy, gcc, Gulf, politics, private sector, Standard Chartered