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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



Political unrest in the Gulf threatens private sector spending and investment but thanks to high oil prices, governments have enough financial firepower to prevent their economies from slowing sharply.

Protests, some of them violent, have touched almost every country in the Gulf over the past two months. Except for Bahrain, the direct economic impact in terms of lost output has been tiny. But the protests have highlighted the potential for more trouble if political issues are not resolved, and this is dampening the mood in the private sector.

However, high global oil prices — themselves partly due to unrest in the Gulf and North Africa — are boosting energy sectors in the region and giving governments enough cash to spend their way out of trouble.

“The increase in oil prices will significantly add to growth dynamics both directly and through the wealth effect,” said Marios Maratheftis, regional head of research for the Middle East, North Africa and Pakistan at Standard Chartered in Dubai.

BANKS HESITANT

The unrest in the Gulf erupted when banks in some countries such as the United Arab Emirates were still hesitant to lend in the wake of the global credit crisis and local debt problems.



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