gcc_quarterly jul 2013

7/28/2019 GCC_Quarterly Jul 2013

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Quarterly8 July 2013

Khatija Haque

Senior Economist

+971 4 509 3065

[email protected]

Jean Paul Pigat

MENA Economist

+971 4 230 7807

[email protected]

GCC Quarterly

Oil production in the GCC declined by 2.6% y/y in H1 2013, according toBloomberg estimates, on the back of weaker global demand and despite a slight

increase in output in the second quarter. Saudi Arabia contributed the most to the

decline in oil output year-to-date, and we have consequently downgraded our

2013 GDP growth forecast for the Kingdom to 5.0% from 5.8% previously.

We retain our 3.8% real growth forecast for the UAE in 2013 despite a better

than expected 4.4% growth in 2012. Activity in the non-oil private sector remains

strong, although the latest IMF report suggests that fiscal policy is likely to be

tighter than we had anticipated this year.

Dubais 2012 real growth was also stronger than expected at 4.4%, with the

manufacturing sector having expanded at an astonishing 13.1% y/y. We

retain our growth forecast for the emirate at 3.9% in 2013, even off this higher

annual base. The continued recovery in the real estate sector, combined with

expected growth in construction and hospitality should underpin Dubais economy

this year.

Rising housing costs have contributed to higher inflation in the UAE and

Qatar year-to-date, in line with our expectations. Headline inflation remains at

relatively low levels by historical standards however. In Saudi Arabia, housing

inflation has been lower than we had expected year-to-date, and we have revised

down our 2013 forecast to 4.0% from 4.5% previously.

In Kuwait, the Constitutional Court upheld the changes to electoral law

decreed last October, but dissolved parliament on a separate technical issue .New elections have been called for 25 July and it now seems unlikely that we will

see much progress on implementing the economic development plan until 2014.

Saudi Arabia: Oil production and OPEC reference price

Source: Bloomberg, Emirates NBD Research


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Page 2

Contents

GCCOverview............................................................................................................................ Page 3UAE ............................................................................................................................................... Page 4

UAE - Dubai ............................................................................................................................... Page 6

Saudi Arabia............................................................................................................................... Page 8

Qatar............................................................................................................................................. Page 9

Kuwait ........................................................................................................................................ Page 10

Oman .......................................................................................................................................... Page 11

Bahrain....................................................................................................................................... Page 12

Key Economic Forecasts..................................................................................................... Page 13


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Page 3

GCC Overview

Downgrade to Saudi GDP growth forecast onlower oil production

GCC oil production has declined 2.6% y/y in 1H 2013, almost

entirely due to lower output from Saudi Arabia. Despite slightly

higher oil production in Q2, we now expect annual 2013 oil output

from the kingdom to be around 4% lower than last year. Since our

5.8% GDP growth forecast was based on an assumption of stable

oil output this year, we have revised this down to 5.0%.

We have retained our GDP growth forecast for the UAE at 3.8%

this year, despite a better than expected performance in 2012

(4.4% versus our forecast of 3.7%) as momentum in the non-oil

sectors appears strong and oil production is marginally higheryear-to-date.

Oil prices averaged 105 per barrel in 1H 2013 (OPEC reference

price). Bloomberg consensus forecasts for Q3 and Q4 2013 imply

an annual average oil price of USD103 per barrel in 2013,

unchanged from the start of the year.

PMIs show expansion in non-oil sectors

Both UAE and Saudi PMI readings showed continued growth

in the non-oil private sectors in Q2 2013, although the pace of

growth in Saudi Arabia is slowing. Improving domestic demand

appears to be the main driver of non-oil expansion in the UAE,

despite tighter than expected fiscal policy. External factors have

likely contributed via higher tourism, and increased demand for

residential real estate, however.

In Saudi Arabia, domestic demand remains underpinned by

government spending and double-digit private sector credit growth.

We would not be surprised to see the PMI readings ease further

during the summer months, particularly as the season coincides

with Ramadan.

Inflation ticks up in UAE and Qatar as housing

costs riseConsumer inflation in the UAE and Qatar has accelerated in the

first five months of this year, mainly on the back of higher housing

costs. The rise in inflation in these countries has been in line with

our forecasts at the start of the year, and the overall level of

inflation is still relatively low compared to pre-crisis levels however.

In contrast, we have lowered our 2013 inflation forecast for Saudi

Arabia to 4.0% from 4.5% previously, as housing inflation year-to-

date has been lower than we had expected.

GCC Oil output and price


PMIs

Source: Markit/ HSBC, Emirates NBD Research

Inflation

Source: Haver Analytics, Emirates NBD Research

10

12

14

16

18

20

0

20

40

60

80

100

120

140

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

mnbarrelsperday

USDperbarrel

GCC oil production (excl Oman, Bahrain)

OPEC Oil Price

50

55

60

65

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13

UAE Saudi Arabia

-1

0

1

2

3

4

5

6

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

%y

/y

UAE Qatar KSA


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Page 4

UAE

Oil output broadly stable in Q2 2013The UAEs oil output rose 4.9% q/q in Q2 and is up 2.5% on

average in 1H 2013 compared with average 2012 production. We

expect oil production to remain at similar levels in 2H 2013 at this

stage, and the overall contribution to GDP growth from this sector

is likely to be negligible this year.

2012 GDP growth beat our forecasts

The UAEs real GDP growth reached 4.4% in 2012, higher than

our forecast 3.7%, according to the latest data from the National

Bureau of Statistics. 2011 real growth was revised down to 3.9%

from 4.2% previously.

The main driver of growth last year was the oil sector, which

expanded 6.3%. Oil still accounts for almost one-third of the UAEs

economy, and is thus a key determinant of the overall growth rate.

Non-oil GDP grew 3.5%, up from 2.6% in 2011, driven mainly by

services sectors rather than industry. In particular, real estate &

business services expanded 6.3% in 2012, while financial services

grew 6.0%. Government, social & personal services, which

together account for 8% of the UAEs economy, also grew strongly

in 2012 at 9.2% and 13.4% respectively.

We retain our 3.8% UAE growth forecast for 2013, as we do not

expect the hydrocarbon sector to contribute as significantly thisyear. Instead, we expect growth to be driven by the services

sectors as real estate continues to recover, and tourism growth

supports trade and associated sectors. We also expect

construction to contribute more substantially to overall growth as

new projects get underway.

IMF expects tight fiscal policy in 2013

The most recent IMF report on the UAE suggests that unlike other

GCC states, government spending in the UAE is unlikely to

contribute significantly to improving demand and non-oil sector

growth this year. Although detailed statistics are not yet available,

the Fund estimates that the consolidated UAE budget surplus

reached 8.8% of GDP in 2012, significantly higher than our 5.2%

forecast, and up from 4.1% in 2011.

For 2013, the IMF expects the budget surplus to remain above 8%

of GDP as the government reduces capital spending. We had

expected an increase in infrastructure spending this year, and

projected a narrowing of the budget surplus to 3.3% of GDP.

PMI data is encouraging

The non-oil private sector continued to expand at a steady pace in

Q2 2013, with the PMI reading for June hitting 54.1. Respondents

continued to cite improving market conditions as domestic demand

appeared to be the main driver of growth in the non-oil sector.

Employment and staff costs rose, but a competitive environment

Oil production


GDP growth


Budget balance

Source: IMF, Emirates NBD Research

0

20

40

60

80

100

120

140

2.4

2.5

2.6

2.7

2.8

2.9

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

USDperbarrel

mnbpd

Oil production (lhs) Oil price (rhs)

3.2

-4.8

1.7

3.94.4

3.8

-6

-4

-2

0

2

4

6

2008 2009 2010 2011 2012e 2013f

%

-15

-10

-5

0

5

10

15

20

2008 2009 2010 2011 2012e 2013f

%G

DP

IMF estimates Emirates NBD estimates


5/20

Page 5

has meant that output costs have been contained and margins

remained under pressure.

We would not be surprised to see the PMI readings dip over the

summer months, particularly as they coincide with Ramadan, eventhough the PMI time series is seasonally adjusted.

Loan growth accelerates

Private sector borrowing reached 3.6% y/y in March (latest

available data) although total bank loan growth (net of provisions)

has exceeded 4% y/y in the first four months of this year, and

reached 5.2% y/y in May. While this is still well below regional

peers, the data shows a steady improvement in loan growth in the

UAE so far this year, particularly in the retail and personal loan

segment. Personal loan growth rose 0.6% m/m (5.6% y/y) in May,

signaling increased consumer confidence, as well as greater

access to credit at more affordable rates.

as deposit growth slows

Nevertheless, deposit growth in the UAE still outpaces loan

growth. Bank deposits grew 10.8% y/y in May, and the cumulative

increase in bank deposits year-to-May is AED 78.8bn, compared

with a AED32.0bn increase in loans over the same period.

Consequently, the loan to deposit ratio has eased to around the 90

mark, the lowest level in at least 5 years.

However, the pace of deposit growth has slowed sharply in recent

weeks, which may be partly due to the decline in EIBOR ratessince February this year. Lower interbank rates reflect improved

liquidity conditions in the UAE banking system, and are likely to

slow deposit growth in the coming months and encourage faster

credit growth, particularly in the retail and consumer segment of

the market.

Inflation rises year-to-date, but still low

Consumer inflation averaged 0.8% in the first five months of 2013,

slightly higher than the 2012 average of 0.7%. The PMI data for

Q2 showed that the non-oil private sector firms were lowering

output prices in the face of increased competition in the market,

and this has likely helped offset rising costs in other components of

CPI, such as housing. Although housing costs were still lower on

an annual basis year-to-date, the pace of price declines is much

slower, and we expect the CPI to start to reflect higher housing

costs in 2H 2013. We thus retain our 2.5% inflation forecast for the

UAE this year.

PMI


Bank deposit and loan growth


Inflation


40

42

44

46

48

50

52

54

5658

60

Aug-09 Mar-10 Oct-10 May-11 Dec-11 Jul-12 Feb-13

-4

0

4

8

12

16

20


%y

/y

Bank deposits

Bank loans

-6

-3

0

3

6

9

12


%y

/y

CPI Food Housing


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Page 6

UAE - Dubai

4.4% Growth in 2012, higher than expectedDubais growth exceeded our forecasts last year at 4.4%, with

2011 growth revised down slightly to 3.0% from 3.3% previously.

The main driver of growth in 2012 was manufacturing, which

expanded 13.0% y/y (up from 11.7% in 2011) and contributed

almost 2pp to the headline growth rate. Manufacturing now

accounts for more than 15% of Dubais economy, compared with

10.6% in 2007.

Transport, storage & communication grew 7.3% in 2012 (up from

2.7% in 2011), and contributed 1pp to Dubais growth last year.

Growth in this sector underscores Dubais status as a global and

regional trade and logistics hub.

Wholesale & retail trade, which accounts for almost one-third of

Dubais economy, grew just 2.3% last year, slower than we had

expected in light of the strong tourism figures. Indeed, the

restaurants & hotels sector saw the fastest growth last year at

16.9% y/y, up from 14.7% in 2011. This sector accounted for 4.5%

of Dubais economy in 2012, up from 3.3% in 2008.

Real estate & business services showed the first expansion since

2008, with real growth of 1.7% last year. The constructionsector

shrank -4.2% y/y, much lower than our 0% forecast for the sector.

2013 forecast unchanged at 3.9%

We retain our 2013 growth forecast of 3.9% for Dubai, despite the

stronger-than-expected growth in 2012, which provides a higher

annual base. This year, we expect continued expansion in the

trade and hospitality sectors as well as a continued recovery in

real estate & business services.

We also expect the construction sector to contribute positively to

GDP growth for the first time since 2008, as recently announced

projects get underway. However, we expect only modest growth in

construction this year.

Strong investment and expansionary fiscal policy in other GCC

states (particularly Saudi Arabia and Qatar) is also likely to support

continued growth in the transport & logistics sectors of Dubai, even

as the economic outlook for Western trade partners remains

lackluster.

Residential real estate prices still rising

Residential real estate prices in Dubai continued to rise in June,

according to latest data from Cluttons, with the low-end segment

showing the strongest gains on a y/y basis. The price per square

foot for low-end apartments rose 61.9% y/y in June, compared to

98.8% growth posted in May. The data does not show the numberor volume of transactions at these prices however, so it is possible

that the spike was on a low number of transactions.

Dubai GDP growth


Real estate prices

Source: Cluttons via Bloomberg, Emirates NBD Research

Inflation

Source:Haver Analytics, Emirates NBD Research

3.2

-2.4

3.33.0

4.43.9

-3

-2

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012e 2013f

%

-40

-20

0

20

40

60

80

100

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

%

y/y

Mid-range villas

Mid-range apartments

Housing CPI

Low-end apartments

-8

-6

-4

-2

0

2

4

6

8


%y

/y

Headline CPIFoodHousing


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Page 7

Mid-range apartment prices rose 40.5% y/y in June while high-end

properties (both apartments and villas) saw increases of 33.1% y/y

and 28.0% y/y respectively. In month-on-month terms, high-end

apartments saw more moderate growth of 3.2%, while high-end

villa prices increased only 0.1% against May.

Dubais official inflation index is starting to reflect the recovery in

the housing market that has been evident over the last year. The

housing component of CPI has showed positive annual growth

since February 2013, albeit at a much lower rate than market data

suggests. As we have mentioned in the past, the difference

between the official measure of housing inflation and the market

data reported by Cluttons and other real estate consultancies is

due to the different survey methodologies. The CPI reflects a mix

of households, some of which have seen no increase in housing

costs at all, while the market data captured by independent

consultancies reflects only the prices of new sales or rentalagreements during the month.

Tourism data remains robust in Q2 2013

Dubais hotels have continued to enjoy occupancy rates above

80% through May, with the year-to-date average at 85.3%. This is

higher than the average occupancy rate of 82.3% in the first five

months of 2012. At the same time, hotels have been able to raise

their rates, with RevPAR more than 10% y/y higher in Jan-May

2013 over the same period last year.

The strength of the tourism and hospitality sector is also reflected

in the strong growth in passenger traffic through Dubais airports.Indeed, according to latest data, passenger traffic increased 18.9%

y/y in May. Overall, we continue to expect growth in the hospitality

and transport sectors of Dubai to contribute to overall GDP growth

in 2013.

Dubai Airport Arrivals

Source:STR Global, Emirates NBD Research

Hotel occupancy and RevPAR

Source:Dubai Airports, Emirates NBD Research

-15

-10

-5

0

5

10

15

20

25


%y

/y

Passengers

Air cargo volume

-20

0

20

40

60

-40

0

40

80

120


%y

/y

%

Occupancy rate (lhs)

Growth in RevPAR (rhs)


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Page 8

Saudi Arabia

Downgrade to 2013 growth forecast on loweroil production

Despite an increase in oil output in the second quarter relative to

Q1, Saudi Arabias oil production year-to-date has averaged9.2mn

bpd, -5.5% lower than average 2012 production.

Our 5.8% 2013 growth forecast for Saudi Arabia at the start of this

year was based on the assumption of unchanged oil production,

although we recognized that as OPECs swing producer, the risks

to oil output were weighted on the downside. In light of the H1 oil

production data however, we think it likely that average oil

production this year will be 3-4% lower than 2012. We have thus

downgraded our 2013 growth forecast for the kingdom to5.0% from 5.8% previously.

Non-oil growth outlook remains solid

Despite the easing in the PMI in Q2, the rate of growth in the non-

oil private sector remains robust. Indeed, the June PMI reading for

Saudi Arabia at 56.6 is still higher than for the UAE, and well

above the neutral 50. Although we would not be surprised to see

the PMI ease in the summer months (despite being seasonally

adjusted), we expect non-oil growth to be supported by increased

government spending particularly on infrastructure, as well as

robust credit growth and consumer demand.

Public sector loan growth accelerates

Public sector borrowing in Saudi Arabia has risen sharply this year,

reaching 21.2% y/y in April, before easing slightly again in May.

Government deposit growth has slowed year-to-date as well,

suggesting that while public sector infrastructure spending is

picking up, it is being increasingly financed through loans rather

than oil revenues. The USD29.2bn increase in SAMAs Net

Foreign Assets year-to-date, against a backdrop of lower oil

production, also suggests that the government is relying more on

borrowing to finance budget spending.

Inflation forecast revised lower

Headline inflation eased to 3.8% y/y in May from an average 3.9%

in Q1 2013. While housing costs have risen year-to-date, the

strong dollar has helped to keep imported inflation in check. In

light of the lower than expected inflation in 1H 2013, we have

revised down our inflation forecast for this year to 4.0% from 4.5%

previously.

S&P outlook upgrade

S&P has raised the outlook on Saudi Arabias credit rating to

positive from stable, on the back of an improved growth outlook.

This is the first change in S&Ps outlook on the Kingdom since

2007. Since then, the country has seen its Net Foreign Assets

more than double to USD668bn at the end of April 2013, while

growth has averaged 7.6% in 2010-2012. Saudi Arabia is

currently rated AA- by S&P.

Oil production


GDP growth, % y/y

Source: Markit/ HSBC, Emirates NBD Research

Credit growth


0

20

40

60

80

100

120

140

8.4

8.9

9.4

9.9

10.4

Jan-12 May-12 Sep-12 Jan-13 May-13

USDperbarrel

mnbpd

Oil production (lhs) Oil price (rhs)

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013f

Hydrocarbon Non-Hydrocarbon

-20

-10

0

10

20

30


%y

/y

Private sector

Public sector


9/20

Page 9

Qatar

On 25 June, Qatars Emir Sheikh Hamad Bin Khalifa Al Thaniannounced that he would step down in favour of Crown Prince

Tamim Bin Hamad Al Thani. The change in leadership was widely

expected and is not likely to have a significant impact on Qatars

economic and foreign policy.

2012 GDP slightly lower than expected

Official estimates show Qatars economy expanded 6.2% last year,

slightly lower than our 6.7% forecast. Growth in the hydrocarbon

sector slowed sharply to 1.7% from 15.7% in 2011, while non-oil

growth was robust at 9.9% (vs 10.1% in 2011). Government

services, which account for more than 10% of Qatars economy

continued to be a primary driver of growth last year, expanding11.5% y/y. Manufacturing, utilities, building and construction and

transport & communication sectors all enjoyed double-digit growth

in 2012, even off high annual bases. We retain our 2013 growth

forecast of 5.2%, with all of this coming from the non-hydrocarbon

sector.

Money supply growth accelerates in 1H 2013

Broad money supply growth continues to expand in y/y terms,

reaching 34.0% y/y in May. Most of this has been due to surging

quasi money, particularly FX deposits which have trebled over the

last year, and which now account for almost one-third of total

money supply, up from just 16% in April 2012.

Government deposits grew 41.9% y/y in May, as public sector

borrowing slowed. Public sector loan growth eased to 21.5% y/y in

May, it slowest rate of growth since August 2011. Meanwhile

private sector credit growth remains robust, reaching 14.9% y/y in

May, up from 13.5% at the end of last year. The main beneficiary

of increased lending to the private sector has been the services

sector, which saw credit growth of 75.9% y/y in May. Industry has

also seen strong credit growth year-to-date. After strong growth in

2011, lending to the real estate sector has slowed sharply in 2013,

and borrowing for consumption remains weak as well.

Inflation accelerates on housing costs

Inflation has picked up steadily year-to-date, averaging 3.5% y/y in

January-May, up from average 2012 inflation of 1.9%. The main

driver has been higher housing costs, although food prices

contributed in Q1 2013. Transport & communication costs have

also risen in Q2, although this has been offset by lower prices for

imported goods and some services. We expect average inflation

to reach 4.5% this year.

Rising inflation, combined with the governments ambitious

spending plans were likely key considerations behind recent

comments by Qatar Central Bank officials on the possibility of amore flexible exchange rate regime being adopted. While moving

to a more flexible exchange rate would provide a greater arsenal of

monetary policy tools to tackle higher inflation over the medium

term, we think such a move is unlikely in the near term.

GDP growth

Source: IMF, National sources, Emirates NBD Research

Credit growth

Source: Qatar Central Bank, Emirates NBD Research

Money supply growth

Source: Qatar Central Bank, Emirates NBD Research

17.7

12.0

16.7

13.0

6.25.2

0

3

6

9

12

15

18

21

2008 2009 2010 2011 2012 2013f

%y

/y

0

20

40

60

80

100

120


%y/y

Public sector

Private sector

-50

0

50

100

150

200

250


%y

/y

M2 (excl govt. deposits)

FX deposits

M3 (incl govt deposits)


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Page 10

Kuwait

Another parliamentary electionOn June 16, Kuwaits Constitutional Court upheld changes to the

electoral law decreed by the Emir in October 2012, which were

challenged by the opposition. The Court ruled that parliament be

dissolved and new elections held, because of a separate technical

issue leading up to the December 2012 elections, according to

press reports. New elections have been called for 25 July.

Under the current voting system, decreed last October, voters can

cast a ballot for only one candidate. The previous system allowed

voters to choose up to four candidates, which made it easier for

opposition candidates to form alliances. The opposition

candidates boycotted the December elections in protest at thechange in the electoral law. It remains to be seen whether they will

participate in the upcoming elections.

In recent years, tensions between the parliament and the

government have delayed the implementation of economic reforms

and infrastructure development programs. To the extent that the

upcoming elections result in a parliament that is more supportive of

the governments initiatives, we could see progress on

implementation of these economic programs and other measures

that would support growth. However, with another election now

due in the coming weeks, it seems unlikely that much will be

achieved this year. Consequently, we retain our 2013 GDP growth

forecast of 3.0% for Kuwait this year.

Private sector credit growth steady in 2013

Private sector credit growth averaged just 3.2% y/y in Q1 2013,

before picking up slightly to 3.6% y/y in April. However, personal

loan growth has remained in double digits since May 2012.

Growth in the real estate component of credit has also

accelerated, reaching 7.1% y/y in April 2013. Public sector credit

continued to contract in Q1 2012, reaching -21.8% y/y in April.

The data supports our view that growth in Kuwait this year will

depend on the private sector, as government stimulus has been

stymied by politics.

Inflation eases in Q1 2013

Headline CPI came in at 3.0% y/y in May according to the state

news agency, citing the central statistics office. This marked a

slight uptick on the 2.8% print posted in April. Household goods &

services, transport & communication and education & medical care

showed the strongest price rises so far this year, but this has been

offset by low imported inflation and stable housing costs.

GDP growth


Credit growth private and public


Inflation, % m/m


4.2

-7.8

7.9

5.7 6.0

3.0

-10

-5

0

5

10

2008 2009 2010 2011 2012f 2013f

%y

/y

-25

-20

-15

-10

-5

0

5

10

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13

%y

/y

Private sector

Government credit

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13


11/20

Page 11

Oman

2012 growth estimated at 5.1%In its latest Article IV report, the IMF estimated real GDP growth of

5.1% in 2012, well below our 8.3% forecast and the governments

target growth rate of 7% for last year. The Fund estimated non-oil

growth of 5.8% in 2012, and growth in oil production of 4.5%.

This year, we expect Oman to be one of the few GCC countries to

increase oil production further; we have penciled in a 2% growth

rate for the hydrocarbon sector. In the year-to-May, Omans oil

output increased 2.6% over average 2012 production. With non-oil

sector growth of around 5.5%, we retain our overall GDP growth

forecast of 4.7% for Oman this year.

Current account surplus narrowed in 2012

Omans current account surplus narrowed by 9.2% y/y to USD

8.2bn (10.5% of GDP) from 12.8% of GDP in 2011, despite a

strong rise in hydrocarbon and other exports. The 10.7% y/y rise

in exports was offset by the nearly 20% y/y growth in imports. Net

outflows on the services, income and current transfers accounts

also contributed to the overall narrowing of the current account

surplus in 2012. This year, we expect the current account surplus

to narrow further to USD7.3bn (8.9% of GDP).

Inflation

Consumer inflation has eased in this year, averaging just 2.2% in

the first four months of 2013. The main driver has been lower food

and services costs, while housing inflation has been muted as well.

The only component of the CPI which has shown a relatively sharp

rise is medical care, but as this has a low weight in the consumer

basket, it has had little impact on headline inflation. While we have

retained our 3.5% inflation forecast for 2013 for the moment, the

risks to our forecast are to the downside.

Budget spending rises in Q1 2013

Increased government spending is also evident in the budget data

for Q1 2013, which showed a 28.2% y/y increase in totalexpenditure. Both current and capital spending increased by just

over 13% y/y in Q1. Current expenditure accounts for almost two-

thirds of total spending. There was also a surge in the funds

allocated to private sector subsidies, which is a volatile component

of the budget and accounts for a relatively small proportion of

overall government spending.

Oil production


Current account balance, USDbn


Inflation


820

840

860

880

900

920

940

960


Th.Bpd

5.0

-0.5

5.0

9.08.2

7.3

-2

0

2

4

6

8

10

2008 2009 2010 2011 2012 2013f

0

1

2

3

4

5

6

7


Headline Food Transport


12/20

Page 12

Bahrain

Our core forecasts on the Bahraini economy remain unchangedthis quarter, with real GDP growth of 2.8% forecast for 2013, which

marks a slight slowdown from the 3.4% rate of expansion posted in

2012. Similar to other economies throughout the GCC, growth

continues to be driven in large part by government spending, as

activity in the non-hydrocarbon private sector remains relatively

anaemic.

Credit growth slowed in Q1 2013

Latest loan growth figures for the first three months of 2013 would

seem to confirm this view. Indeed, by the end of March, total credit

growth had fallen to a three-year low of 6.8% y/y. While a more

detailed breakdown of the headline figure shows credit growth toboth the public and private sectors slowing sharply in recent

months, lending to the former continues to outpace the latter. As of

March, credit growth to the government came in at 11.1% y/y in

March, compared to only 5.7% to the private sector.

Current account surplus narrowed in 2012 onhigher oil imports

Although domestic consumption and investment appears set to

slow slightly in H213, Bahrains external position appears to be on

solid ground. Recently released balance of payments data for

2012 shows the current account surplus narrowing to USD2.2bn

last year, from USD3.2bn in 2011. This was driven almost entirely

by a higher hydrocarbon import bill last year, which was likely due

to disruptions to the Abu Saafa oil field. More encouragingly, 2012

also saw non-oil exports increase to a record USD4.5bn, while the

services trade surplus ticked up to USD1.3bn, from USD1.2bn.

With oil prices expected to trade broadly sideways in H213, we

believe Bahrains external position will remain robust, and are

forecasting the current account surplus coming in at USD2.1bn, or

approximately 6.7% of GDP.

Break-even oil price highlights fiscalvulnerability

The recent surge in government spending, while supporting near-

term growth, is nevertheless undermining the countrys long-term

fiscal dynamics. A recently released IMF Article IV concluding

statement highlights the economys vulnerabilities to a potential

drop in oil prices, as the budgets breakeven price is estimated by

the Fund to have reached USD115. Concerns over vulnerabilities

to oil price fluctuations and a rising public debt stock were also

behind the decision in mid-June of Moodys to place Bahrains

sovereign credit rating (Baa1) on review for a possible downgrade.

GDP growth

Source: Haver An alyt ics, Emirates NBD Research

Credit growth


Current account balance (% GDP)


2.5

4.3

1.9

3.4

2.8

0

1

2

3

4

5

2009 2010 2011 2012e 2013f

%y

/y

0

10

20

30

40

50

60


%y

/y

Money supply

Private sector credit

Public sector credit

2.43.0

11.1

7.36.7

0

2

4

6

8

10

12

2009 2010 2011 2012 2013f


13/20

Page 13

Key Economic Forecasts: UAE

National Income 2009 2010 2011 2012f 2013f

Nominal GDP (AED bn) 935.8 1055.6 1280.2 1409.5 1406.4

Nominal GDP (USD bn) 255.0 287.6 348.8 384.1 383.2

GDP per capita (USD) 31095 34804 41383 44669 43698

Real GDP Growth* (% y/y) -4.8 1.7 3.9 4.4 3.8

Abu Dhabi* -5.9 1.7 4.6 4.4 3.7

Dubai* -2.4 3.3 3.0 4.4 3.9

Monetary Indicators (% y/y)

M2 9.8 6.2 5.0 4.4 6.4

Private sector credit 0.3 0.6 2.1 2.1 5.0

CPI (average) 1.6 0.9 0.9 0.7 2.5

External Accounts (USD bn)

Exports 192.3 211.9 279.3 303.8 314.0

o/w hydrocarbons 68.2 74.7 111.6 118.3 111.7

Imports 149.7 161.4 197.8 216.8 227.5

Trade balance 42.6 50.5 81.5 87.0 86.5

% GDP 16.7 17.6 23.4 22.7 22.6

Current account balance 9.2 9.1 33.3 36.2 34.3

% GDP 3.6 3.2 9.5 9.4 9.0

Fiscal Indicators (% GDP)

Consolidated budget balance -12.8 -2.2 3.1 5.2 3.3

Revenue 26.8 30.0 35.4 35.6 32.6

Expenditure 39.6 32.2 32.3 30.5 29.4

* Abu Dhabis real growth data are Emirates NBD estimates and forecasts. Dubais real growth data are sourced from Dubai Statistics to 2011, with

Emirates NBD forecasts for 2012 and 2013. UAE real growth data are sourced from NBS to 2012, with Emirates NBD forecasts for 2013.

Source: Haver Analytics, IMF, National sources, Emirates NBD Research


14/20

Page 14

Key Economic Forecasts: Saudi Arabia


Nominal GDP (SAR bn) 1609.1 1959.3 2510.7 2727.4 2881.5



Real GDP Growth (% y/y) 1.8 7.4 8.5 6.8 5.0

Hydrocarbon -8.0 0.3 10.4 5.5 -4.0

Non- hydrocarbon 5.3 9.6 8.0 7.2 6.5


M2 10.7 5.0 13.3 13.9 9.0


CPI (average) 5.1 5.3 4.0 2.9 4.0


Exports 192.2 251.0 364.6 388.2 379.1

o/w hydrocarbons 163.1 215.2 317.6 342.5 322.3

Imports 87.1 97.4 120.0 141.8 156.0

Trade balance 105.1 153.6 244.6 246.4 223.1

% GDP 24.5 29.4 36.5 33.9 29.0


% GDP 4.7 12.6 23.5 22.5 16.7

SAMA's Net foreign Assets 405.3 440.4 535.2 647.6


Budget balance -5.4 4.5 11.6 13.7 6.2

Revenue 31.7 37.9 44.5 45.7 40.1

Expenditure 37.1 33.4 32.9 32.0 34.0

Public debt 15.9 9.9 6.1 3.6



15/20

Page 15

Key Economic Forecasts: Qatar


Nominal GDP (QAR bn) 356.0 455.4 624.2 700.3 751.1




Hydrocarbon 4.5 28.9 15.7 1.7 0.0

Non- hydrocarbon 16.6 9.2 10.1 9.9 8.8


M2 16.9 23.1 17.1 22.9 15.3


CPI (average) -4.9 1.6 1.9 1.9 4.5


Exports 46.9 79.1 113.3 114.1 109.6

o/w hydrocarbons 42.3 72.6 104.3 104.0 99.6

Imports 22.5 27.2 29.4 32.6 36.1

Trade balance 24.5 51.8 84.0 81.6 73.5

% GDP 25.0 41.4 49.0 42.4 35.6


% GDP 10.2 26.8 32.5 28.3 23.9

Total external debt 74.0 100.9 126.4 150.5 161.8

% GDP 75.7 80.6 73.7 78.2 78.4


Budget balance 15.2 3.0 8.7 9.6 6.2

Revenue 47.5 34.2 35.3 36.7 34.2

Expenditure 32.3 31.3 26.6 27.2 28.0

Source: Haver Analytics, IMF, Emirates NBD Research


16/20

Page 16

Key Economic Forecasts: Kuwait


Nominal GDP (KWD bn) 30.5 34.4 44.4 48.3 49.6



Real GDP Growth (% y/y) -7.8 7.9 5.7 6.0 3.0

Hydrocarbon -14.7 1.7 11.0 10.0 0.0

Non-hydrocarbon -4.0 11.1 4.5 4.0 4.5


M3 13.2 3.0 8.2 4.5 6.5


CPI (average) 4.0 4.0 4.8 2.9 3.5


Exports 54.4 67.6 104.1 118.4 108.4

o/w hydrocarbons 48.9 61.8 96.6 110.2 100.6

Imports 18.5 20.1 21.9 23.3 24.9

Trade balance 35.9 47.6 82.2 95.1 83.5

% GDP 33.9 39.7 51.2 55.2 47.6


% GDP 26.7 31.9 44.0 48.2 40.7


Budget balance 21.1 13.9 29.8 21.7 16.6

Revenue 58.0 61.1 68.1 60.4 56.9

Expenditure 36.9 47.2 38.3 38.8 40.3

Source: Haver Analytics, IMF, Emirates NBD Research


17/20

Page 17

Key Economic Forecasts: Oman


Nominal GDP (OMR bn) 18.5 22.6 26.9 30.0 31.7





M2 4.7 11.3 12.2 10.7 11.2


CPI (average) 3.7 3.2 4.0 2.9 3.5


Exports 27.7 36.6 47.2 52.2 54.0

o/w hydrocarbons 18.1 25.3 33.4 36.4 36.6

Imports 16.1 17.9 21.5 25.7 28.2

Trade balance 11.6 18.8 25.6 26.5 25.8

% GDP 24.1 31.9 36.7 34.0 31.3

Current account balance -0.5 5.0 9.0 8.2 7.3

% GDP -1.0 8.6 12.8 10.5 8.9


Budget balance 0.3 4.8 6.3 10.7 -1.4

Revenue 40.1 39.8 46.2 46.6 39.6

Expenditure 39.8 35.0 39.9 35.8 41.0



18/20

Page 18

Key Economic Forecasts: Bahrain


Nominal GDP (BHD bn) 8.62 9.67 10.96 11.41 11.92





M2 4.5 13.0 5.2 5.2 6.0

Private sector credit -0.7 6.2 15.0 9.1 7.0

CPI (average) 2.8 2.0 -0.4 2.8 3.2


Exports 11.9 13.6 19.7 19.8 19.1

o/w hydrocarbons 8.9 10.2 15.5 15.2 14.3

Imports 9.6 11.2 12.1 13.2 12.2

Trade balance 2.3 2.5 7.5 6.5 6.9

% GDP 9.9 9.6 25.9 21.5 21.6


% GDP 2.4 3.0 11.1 7.3 6.7


Budget balance -4.3 -4.8 -0.3 -2.0 -5.4

Revenue 19.8 22.5 25.7 26.6 23.5

Expenditure 24.1 27.3 26.0 28.6 28.9



19/20

Page 19

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Emirates NBD Research& Treasury Contact List

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Research

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gcc_quarterly jul 2013

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