World Economies

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World economies

Central Asian States

According to the Asian Development Bank’s latest economic outlook, the Central Asian states will maintain rapid economic expansion with the GDP growth in the region projected at 10.3 per cent in 2006 and 9.8 per cent in 2007. The region grew 10.9 per cent in 2005. Regional inflation is expected to rise slightly about 7.9 per cent in 2006, but the current account is now expected to post a strong surplus due to high oil prices. Overall growth for the 43 countries of developing Asia is forecast at 7.2 per cent in 2006 and 7 per cent in 2007.

In Armenia, rapidly rising incomes and falling poverty rates abetted by well-sequenced economic reforms are the country’s current hallmarks. GDP growth is forecast between six per cent and seven per cent in 2006-2007 as inflation is expected to be well contained, and the current account deficit is expected to narrow further. The medium-term outlook is favourable although prospects would brighten if an agreement to resolve the conflict over Nagorno-Karabakh was concluded and the country’s borders were fully open to trade.

Azerbaijan experienced unprecedented GDP growth of 26.4 per cent in 2005. This momentum is set to build further to 30.5 per cent in 2006 and nearly that rate in 2007, driven by oil and gas production and exports as recent large investments come fully online. The 2006 budget calls for a very large increase in spending and the Government will need to carefully manage expenditure to avoid stoking inflation, which started to pick up last year. Key challenges are controlling inflation, preventing excessive appreciation of the Azerbaijani manat, and diversifying the economic base.

Living standards: Ambitious structural changes, foreign investment, high prices for hydrocarbons, and political stability have spurred Kazakhstan’s economy and improved living standards in recent years. The GDP growth is projected to average 8.5 per cent in 2006-2007 as high investment continues in this oil-driven economy. The challenge ahead is to maintain past successes and ensure broad-based development and employment by expanding non-oil manufacturing, raising productivity in agriculture, and extending the reach of small and medium-sized enterprises.

In the Kyrgyz Republic the “Tulip Revolution” and the fall in gold production at the country’s major mine adversely affected the economy in 2005. The outlook is for recovery and the GDP growth is projected at five per cent in 2006 and 5.5 per cent in 2007 based on implementation of an economic programme supported by the Poverty Reduction and Growth facility of the IMF. The new Government has declared its commitment to addressing the three main challenges facing the country: low living standards, unemployment, and widespread corruption.

The GDP growth in Tajikistan slowed to 6.7 per cent in 2005 due mainly to falling cotton production and deterioration in the terms of trade. The outlook is for a recovery in activity with GDP growth projected at 8 per cent in 2006 and then moderating to six per cent in 2007. Progress has been made in implementing a poverty reduction and growth strategy in recent years, despite the legacy of weak institutional capacity and a limited resource base. Medium-term economic prospects are promising in view of the start of major foreign-invested projects and intensified efforts to advance structural reforms. The outlook for growth in Turkmenistan is subject to considerable uncertainty because of the economy’s heavy reliance on exports of a handful of energy and agricultural products. If prices for exports of natural gas raise in 2006 this will provide a short-term stimulus to the economy and GDP should grow five per cent-7 per cent a year in 2006-2007.

Uzbekistan has posted strong growth over the past two years with significant contributions from agriculture and robust performance on external trade. This growth momentum is expected to continue in 2006-2007 with the GDP projected to expand about 6 per cent annually, aided by greater foreign direct investment in the hydrocarbon sector. Medium-term prospects are bright; however, a sustained, broad-based high-growth track would require undertaking the critical mass of reforms needed for private sector-led growth.

Russian Economy

THE International Monetary Fund has raised GDP growth forecast for Russia from six per cent predicted earlier to 6.5 per cent. The growth of Russia’s gross domestic product (GDP) is forecasted at a level of 6.5 per cent both for 2006 and 2007. In April issue of the IMF report, Russian GDP growth was forecasted at six per cent this year and 5.8 per cent next year.

The IMF forecast that in 2006 inflation in Russia will amount to 9.7 per cent, lower tan 10.3 per cent forecast earlier. Inflation forecast for 2007 has been decreased from 9.5 per cent to 8.5 per cent. The experts stressed that their inflation calculations are based on annual average. For the whole of CIS (Commonwealth of Independent States) IMF experts forecast the GDP growth at 6.8 per cent this year and 6.5 per cent next year. The IMF forecasts that the CIS inflation will amount to 9.6 per cent in 2006 and 9.3 per cent in 2007.

The Fund’s economists stress that CIS countries have to continue structural economic reforms, noting that recently their tempo has slowed down, in particular, in Russia. A recent report in this connection notes that increase in budget spending has to be accompanied by acceleration of reforms. Structural reforms, increase in investments and improvement of investment climate remain the key factors for preserving current rates of economic growth.

GDP forecast: Meanwhile, the Russian Economy Ministry had revised its forecast for the country’s GDP growth from 6.5 per cent to 6.6 per cent. The ministry’s basic “moderately optimistic” forecast, which will lay the basis for a 2007 budget and a three-year financial plan, projects GDP growth at six per cent in 2007, 5.8 per cent in 2008 and 5.9 per cent in 2009. The forecast is based on trends in world oil prices. It expects the annual average price of Russia’s Urals crude to be $65 per barrel this year, $61 per barrel in 2007, $54 per barrel in 2008 and $48 per barrel in 2009.

The ministry believes the uptrend in oil prices will continue until 2008-2009.

It has also prepared a highly optimistic and a highly pessimistic forecast for reference purposes. The first is based on the growth of oil prices to $70-80 per barrel by 2009 and predicts GDP growth at 6.4 per cent in 2007, 6.1 per cent in 2008, and 6.2 per cent in 2009. But under this scenario the Russian economy would fail to absorb surplus oil revenues and this situation could trigger inflation growth.

The second reserve scenario is based, on the contrary, on a dramatic decline in world oil prices and projects the GDP growth at five per cent in 2007, 4.8 per cent in 2008, and 4.9 per cent in 2009. The Russian economy would continue its sustainable development under any of the above scenarios. The ministry official also said the rouble would not change considerably against the dollar in nominal terms in the next three years.

The economy ministry also revised upward its forecast of industrial production in Russia from four per cent to 4.7 per cent in 2006. It expected a net capital inflow and the expansion of accrued investment in Russia in the next three years. In 2006-2009, we project a net capital inflow due to an expected repatriation of capital, the growth of borrowings and the initial public offerings of Russian companies. At the same time, the Russian Economy Minister has reportedly said that it won’t revise GDP growth and inflation forecasts for this year, noting that there are no objective prerequisites for changing the forecast.

As for the inflation, in January-August of 2006 inflation in Russia amounted to 7.1 per cent. The government’s inflation forecast for this year amounts to nine per cent. In nominal terms, there will be no significant changes. The rouble rate will remain virtually stable.

http://www.dawn.com/2006/10/16/ebr18.htm

 

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Turkey

Turkey has made remarkable progress. Aside from the real growth in its national revenue, Turkey’s economic growth multiplied in a few years time with the help of its overvalued currency, New Turkish Lira. Turkey’s annual revenue has doubled since 2002. The Gross National Product (GNP) of Turkey was $240 billion in 2003 and ranked 22nd worldwide. It is expected to rank 20th in 2007 with its $400 billion GNP, jumping two places. According to the estimations of the International Monetary Fund (IMF) Turkey’s GNP will have increased 66.4 per cent in 2007 when compared to 2003 statistics.

GNP: Turkey’s GNP was $240.6 billion in 2003 and has gradually increased since then, reaching $302.6 billion in 2004, $362.5 billion in 2005 and an estimated $378.4 billion in 2006. Based on these estimates, Turkey will have outnumbered the countries like Poland, Austria, Denmark, Greece, Ireland, Finland and Portugal. In 2007, the estimated GNP of Poland will be $351.3 billion, Austria’s $340.6 billion, Denmark’s $296,4 billion, Greece with $266.7 billion, Ireland $242.8 billion, Finland with $217.8 billion and Portugal at $203.3 billion in 2007.

The United States will rank first for 2007 with its $13,928.5 billion GNP. Japan will rank second with its GNP of $4,599.4 billion and Germany will follow in third place with a $3,036.9 billion GNP. China will rank fourth in this classification with its GNP of $2,871 billion.

Domestic income: The country’s annual domestic income has doubled since 2002. The recently introduced reforms made the Turkish economy reliable and stable. It has become financially stable as a result of political stability and the introduction of substantial reforms. The country recorded remarkable growth rate of 7.5 per cent in the first half of 2006. The inflation rate has come down from 54 per cent to eight per cent since 2001. While public debt has decreased from 102 per cent to 66 per cent.

This year, Turkey has exported 22 per cent of its economic production, while this figure was three per cent in 1980. Turkey’s May crisis did not change the fundamentals of the Turkish economy. The International Monetary Fund has also appreciated Turkey’s economic progress. It has underlined the fact that Turkey was the sixth biggest car and spare parts manufacturer, and that 40 per cent of the TVs sold in Germany were imported from Turkey. Turkey’s former trade structure, based on textiles, was over.

Exports in September have broken a record by increasing by 10.5 per cent compared to the same period last year. Monthly exports have reached $7.7 billion and annual exports have reached $81.5 billion. The data from the Turkish Exporters Assembly indicates that exports in September hit a record. According to the data, exports have reached $7.7 billion in September with an increase of 10.5 per cent compared to last year. So, the export record in June has been registered in records by increasing by $9 million in September.

According to the statement, exports for nine months have reached $61.5 billion by increasing by 15 per cent.

Countries such as China and India, with their cheap labor and capital, have vastly increased their presence in the world’s export market. In contrast, Turkey’s nightmarish current account’s deficit continues to grow along with its trade deficit. Turkey’s export target in 2006 is $ 79 billion, but we will try to increase this amount. During the last decade, Turkey has diversified its exports not only in agricultural products but also in terms of industrial products.

Trading partners: Turkey’s main trading partners during the last decade have been the EU countries. Turkey’s exports to the central and eastern European countries and the CIS countries have also been increasing steadily. According to World Trade Organization, Turkey ranks the 22nd among world’s most exporting countries, and 14th among importing countries. Import target for 2006 is 124 billion USD and export target is 79 billion USD. Thus Turkey’s trade volume in 2006 is expected 203 billion dollars.

Turkey is the biggest economy in the Middle East, Balkans and Caucasia regions. The economy has broken new records in continuous growth over the past 4 years. In the second quarter of 2006, the economy grew by 8.5 per cent, while the Turkish Institute for Statistics (TUIK) has announced that the first 6 months of this year saw a growth speed of 7.5 per cent. Growth was recorded in 2005 as being at 7.6 per cent, while the first quarter of 2006 saw 6.3 per cent growth. TUIK is also estimating that the per capita income levels will have risen by the end of 2006, calculating that the average income of Turkish citizens is currently $5,008, but will rise to $5,800 by the end of the year.

Australia

The GDP growth is expected to average around three per cent in 2007-08, supported in both years by export expansion and continued solid growth in domestic demand. Continued growth in employment is allaying public concern that the new industrial relations regime could lead to substantial job-shedding. The current-account deficit will expand next year, despite a smaller merchandise trade deficit.

The services deficit will return to more normal levels next year, and income deficits will remain large. The International Monetary Fund expects the Australian economy will continue to perform strongly, growing by 2.9 per cent in 2006 and 3.2 per cent in 2007. The IMF expects unemployment to remain at around its current low level over this period, and inflation to remain moderate.

IMF: The IMF praises the state of Australia’s public finances, noting that Australia continues to demonstrate an ‘enviable’ record of fiscal prudence with the budget remaining in surplus and public debt ratios staying on a firm downward track.

The IMF welcomes the Government’s workplace relations reforms and changes to the tax and benefits systems, pointing out that these will improve work incentives, and ‘set the stage for continued strong employment growth’.

Global growth: Favourable global conditions should continue to support Australia’s economy. The IMF has strengthened its forecasts and is forecasting global growth of 4.9 per cent in 2006 and 4.7 per cent in 2007.

While high and volatile oil prices remain a significant risk to world growth, the Fund notes that higher oil prices have not yet significantly impacted on inflationary expectations. The Fund highlights the importance of credible monetary policy frameworks in keeping inflationary expectations in check and the need to improve the supply-demand balance in oil markets.

The IMF again draws attention to global current account imbalances and reiterates the need for policy responses across a large number of countries to facilitate the orderly adjustment of these imbalances, including: fiscal consolidation and measures to increase private savings in the US, structural reforms to boost growth in Japan and Europe, deeper financial and corporate sector reform in key Asian economies and increased investment in oil-exporting countries. The government remains committed to sound macroeconomic policy frameworks and to reforms which will sustain Australia’s strong economic performance.

Trade deficit: Exports are fast catching up with imports. The trade deficit is now only $0.2 billion. Finding an extra $4 billion per year worth of services exports and about $2 billion per year worth of services imports goes some way to narrowing the trade deficit. Despite the revisions, the key driver of the narrowing in the trade deficit over the year remains the surge in mining exports. However, poor growing conditions in rural Australia may prevent the trade balance moving into surplus soon. Any prospective decline in rural exports needs to be kept in perspective. Mining exports are three to four times larger than rural exports.

The ongoing increase in exports highlights the boost to the economy from buoyant foreign demand for minerals. The Reserve Bank referred to the effect of high commodity prices on domestic income and spending when it increased the cash rate in August.

Consistent with the recovery in the Japanese economy, exports to Japan have now breached the $30 billion per year threshold. Exports to eurozone have also picked up significantly over the year. Only exports to North America stand out as a source of weakness.

The trend in imports has turned down on the back of lower oil and capital goods imports. Imports increased by one per cent in August but are four per cent below the peak recorded in May 2006. As a net oil importer, Australian’s purchasing power is rising in response to the significant fall in world oil prices.

Capital imports appear to have peaked and capital spending is high enough to support to strong growth in the capital stock and an improvement in productivity and production growth. Consumption imports appear to have regained some momentum as retail sales have improved. There is also likely to be some restocking of store rooms following the recent decline in inventories.

The trade deficit narrowed from $0.3 billion in July to only $0.2 billion in August. The trade deficit was much smaller than the median expectation of $0.6 billion. In August, higher transport exports pushed down the trade deficit.

There were also significant upward revisions to services exports reflecting new data sources and methodology. Despite the revisions, the key driver of the narrowing in the trade deficit over the year remains the surge in mining exports.

http://www.dawn.com/2006/10/30/ebr14.htm

 

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Syria

THE Syrian economy is benefiting from strong oil prices and the non-oil sector is performing strongly. Beside, the piecemeal reform programme has accelerated over the last year. However, positive developments have occurred in a backdrop of deep political and economic challenges. The economy continues to under perform and substantial reform is still required. Meanwhile, Syria also faces possibility of the UN sanctions and increased international isolation following the war in Lebanon.

The IMF estimates that the real GDP growth accelerated to 2.9 per cent in 2005, below the government estimate of 4.5 per cent, compared with an average of 1.8 per cent between 1999 and 2004. According to a latest SCB update, economic growth is forecast to accelerate marginally in 2006 to 3.1 per cent. Although, the economy still remains dependant on the oil sector, which is benefiting from the strong global prices, the non-oil sector is estimated to be realising strong growth of over five per cent. The agricultural sector has performed well, which is important for boosting private consumption as around one-third of the population is employed in the sector.

The economy is also benefiting from the strong performance and liquidity in the GCC. Remittance inflows have been increasing and have boosted both private consumption and investment levels, while direct investment from the GCC is also increasing in areas such as real estate, tourism, finance and telecommunications. Economic liberalisation is seen attracting FDI from the region. The recent reforms have focused in vital areas such as fiscal consolidation, exchange rate unification, and trade and financial reforms. The trade reforms have helped to boost non-oil exports.

Steps have also been taken to liberalise monetary policy. Some of the measures were introduced to offset the downward pressure on the Syrian pound following the assassination of the ex-Lebanese Prime Minister. The central bank base rate was increased for the first time in decades and there has been some movement away from the fixed interest rates that have characterised policy for the last 25 years. Furthermore, certificates of deposits have been launched for the first time and initial steps have been taken to establish an interbank market.

On the exchange rate front, banks are now allowed to set their exchange rate within a narrow band around the fixed central bank rate. Further exchange rate reforms are expected, including the abolition of the remaining secondary exchange rates and further liberalisation of the foreign currency law. Despite these positive developments, deep challenges remain. While real GDP growth has accelerated over the last two years, the growth rate was still relatively weak, especially given the performance of other regional oil (and non-oil) exporting countries and the domestic needs of the economy.

According to the Standard Chartered economists, a stronger growth rate is required for increasing job opportunities. Moreover, deeper and broader reforms are required if higher levels of growth are to be achieved and sustained. The need for reform is accelerated by the fact that oil reserves are falling and the oil import bill is increasing. Syria is set to become a net oil importer in 2010. The loss of oil income will add serious challenges to the fiscal and current accounts, let alone maintaining living standards.

Egypt

Egypt's external performance remains strong despite the current account surplus falling to 1.6 per cent of GDP in FY2005/06 (July 2005-Jun 2006), from 3.1 per cent in the previous year. This figure masks the robust performance of exports, which increased by 33 per cent y/y, with export growth accelerating to 52.5 per cent in the second half. Imports also increased strongly by 25.8 per cent, driven by the buoyant demand in the economy. Thus imports are over double the value of exports. This resulted in the trade deficit widening. Positively, imports of investment and intermediate goods represented 53.6 per cent of total imports, which bodes well for Egypt's economic outlook.

There were also strong performances in the invisible components of the current account, as tourism, remittances and Suez Canal earnings continued to increase. Although tourism revenues grew by 12.5 per cent y/y in FY 2006/07, the sector was negatively impacted by the terrorist attacks in April. Visitor numbers into Egypt fell by 5.5 per cent in July, the third consecutive monthly drop. However, a strong recovery in the tourism sector is expected. There have also been positive developments on the capital and financial accounts. The progress on the reform front has raised and improved Egypt's profile in international capital markets.

Foreign direct investment and inward portfolio flows have risen sharply. The FDI into Egypt increased by 56.4 per cent y/y to USD 6.1bn in FY 2005/06, equivalent to over 5.5 per cent of GDP; this is up from under 3.0 per cent of GDP in FY 2003/04. Importantly, non-energy investments accounted for around 70 per cent of FDI, compared with just 33 per cent in FY 2004/05. Meanwhile, portfolio inflows increased to USD 2.8bn in FY 2005/06, up from USD 800m. The strong external performance has resulted in the continued build up of FX reserves, which reached USD 24.1bn in September 2006, a 14.1 per cent y/y increase.

Importantly, the FDI inflows into Egypt are continuing to increase in the current fiscal year, supported by the government's privatisation program, including the sale of Egypt's third mobile network to Etisalat for around USD 2.9bn. Furthermore, 80 per cent of Bank of Alexandria was sold to Italian bank Sanpaolo IMI for USD 1.6bn. For both these sales, the prices were at the higher end of analysts' expectations.The external sector remains a strong engine of economic expansion, although growth remains broad-based with expansion in private consumption and investments as reflected in the increase in imports.

Robust economic activity is resulting in a pickup in inflationary pressure and the CPI jumped 9.5 per cent in September. After moderate growth rates in the CPI at the beginning of the year, inflationary pressure has been accelerating since June, with the year-on-year CPI increasing by over 7.0 per cent. Along with the strong demand in the economy, other factors driving inflationary pressure are the outbreak of avian influenza which has been placing upward pressure on food prices and the reduction in fuel subsidies. Nevertheless, growth will remain strong driven by private consumption and investment. Preliminary government data places real GDP growth at 6.9 per cent in FY 2005/06.

Afghanistan

According to the IMF data, the Afghan economy is doing well. In fiscal year 2005/06, real GDP, excluding opium production, is estimated to have expanded by 13.8 per cent and is projected to grow by another 11.7 per cent in the current fiscal year. Inflation remains high, around 10 per cent, but is expected to decline gradually going forward with the authorities already having tightened monetary conditions in the second half of 2005/06. The fiscal performance has also been impressive with the 05/06 operating deficit excluding grants expected to be around 3.7 per cent of the GDP versus a previous expectation of 4.1 per cent and expected to fall further to 2.8 per cent in 06/07.

The 2005/06 performance was helped by better than expected revenue collection efforts. On the spending side of the equation, the government kept operating expenditures broadly on track, despite the fact that many non-budgeted items hit the accounts, including security costs previously born by donors and sharply higher education costs due to a recruitment drive. This illustrates the government's commitment to meet targets and stabilise the macroeconomic situation. Given the need to reduce the level of government involvement in the economy and establish a vibrant private sector, an accelerated implementation of the development budget spending seems crucial.

The main problem here is not the access to the finances — donor spending in 05/06 was projected at 29 per cent of the GDP — but a lack of the authorities' capacity to implement the programs. Even the target of development spending to the tune of 14.2 per cent of GDP is ambitious.The country remains extremely reliant on external funding. Efforts to reduce the level of state involvement in the economy, via the closure/privatisation of state-owned companies, are crucial to ensure the long-term vibrancy of the economy and the sustainability of the country's public finances.

However, the security situation is the make or break factor for the government's attempts to reform the economy. Poppy cultivation is on the rise once again, after a decline in 2005/06, and as a result so are security concerns. A failure to address these issues would risk a change in government and a reduction of international financing that is so crucial to the economy. The IMF appears confident in the government's willingness and ability to continue to push ahead with the reform program, which includes reducing the level of government involvement in the economy via the closure/privatisation of state-owned enterprises and the encouragement of a vibrant private sector, to be boosted by increased foreign direct investment.

A necessary condition for the economy's long-term stability is to manage the delicate balance of reducing the economy's reliance on poppy cultivation and provide alternative sources of employment. The government last year saw a 21 per cent decline in poppy cultivation, although good weather almost entirely offset this decline in terms of production as yields rose. Unfortunately, this year there are already reports that poppy cultivation is once again on the rise — the UN estimates a 20 per cent increase in 2006.

While rising incomes from poppy cultivation may have spillover into the licit economy via increased spending, the negative aspects on stability are there for all to see. The key problem for the government appears to have declining control. Meanwhile, the security situation is deteriorating as the Taliban is starting to gain more influence outside of Kabul. The slow pace in the increase in standards of living — GDP per capita, excluding the opium sector, is estimated to have risen to USD 294 from USD 253 a year earlier — is providing the Taliban with support as it can provide much higher income levels.

The current account is estimated to have posted a small surplus in 2005/06, but if you exclude grants this falls into a dramatic 42 per cent of GDP deficit. The IMF also appears very pleased with the progress made under the macroeconomic stabilisation program with the government having met all of its December-2005 obligations under the SMP apart from the publication of audited fiscal accounts for the year 2004/5, ultimately met in March of this year. But, while the Afghanistan economy is currently on an upward path, there are clearly many risks to the outlook.

Saudi Arabia

After an exceptional year in 2005, Saudi Arabia's economic position is forecast to remain strong in 2006. According to preliminary data, real GDP growth hit 6.5 per cent in 2005, with both the fiscal and current account surpluses reaching record highs and annual average inflation remaining low at 0.4 per cent. A higher average oil price in 2006 will ensure the economic performance remains buoyant, alongside increased government spending and investments, although growth is expected to slow moderately owing to the strong base effect, a lower marginal increase in the oil price and higher imports.

The government has announced an expansionary budget for 2006, with spending planned to increase by 19.6 per cent from the 2005 budget. Although this is 1.8 per cent lower than actual spending in 2005, the government is to exceed budgeted spending. Furthermore, the nearly 20 per cent increase in the 2006 budget is much higher than the planned spending rises in previous budgets, suggesting the actual expenditure will be substantially higher. The main areas to benefit from higher spending include social development and infrastructure. Reflecting these priorities, 26 per cent of the budgeted expenditure is directed towards education and human resource development, a positive development in terms of diversification efforts. The budget surplus is forecast to increase marginally in 2006. However, this will be limited by the increase in government spending. The budget is based on a conservative oil price of USD 35pb and the surplus is expected to be substantially above the forecast of SAR 55 billion in the budget. A budget surplus of 19.0 per cent of GDP is being forecast, up from 18.6 per cent in the previous year. The increase in government spending will continue to add a strong fiscal stimulus to the economy (along with the high oil price), supporting both business and consumer confidence.

Furthermore, increased investment and consumption in the economy will result in continued buoyant results for the Saudi corporate sector and will support private sector growth. Private demand in the economy will also be aided by the continued expansion of consumer bank lending, albeit at a weaker rate (the central bank issued tighter rules for personal lending in November 2005). However, an area of risk has been the fall in the stock market; the index dropped almost a third in February and March and again fell in April.

With the strong population growth rate, there is an emphasis to upgrade the infrastructure of the country, such as the building ten independent water and power plants by 2016, with an investment outlay of USD 16 billion. Infrastructure improvement is also needed to attract FDI, which is crucial for increasing employment opportunities for the population. Other plans include the development of the King Abdullah City, with investment of USD 26.7bn in a huge new residential, industrial and services development to be located close to Jeddah. Work on the development started in December 2005.

Despite the strong oil price, the government has forged ahead with its economic reform programme. This culminated in Saudi Arabia joining the WTO in December 2005. Domestically, the trade deal will promote the liberalisation process via the opening up of sectors, and increase transparency and predictability in the commercial environment; these factors will support the investment environment. However, competition in the domestic market will increase, as sectors are opened and measures to protect domestic producers are removed.

One key area of the economy that will benefit from the WTO agreement is the petrochemical sector. Positively for Saudi Arabia, the agreement confirmed Saudi Arabia's right to retain low feedstock prices on the grounds that its hydrocarbon resources are a natural advantage and not classed as a subsidy. The Saudi Basic Industries Corporation (Sabic) plans to raise its output of petrochemicals and other products to 51m tonnes in 2006 (from 43m tonnes in 2004) as part of an expansion to 60m tonnes by 2008.

http://www.dawn.com/2006/12/11/ebr16.htm

 

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World economies

Growth in both of these regions continues to benefit from very strong global commodity prices, including oil. The oil-exporting countries (Saudi Arabia, Kuwait, the smaller Gulf states, Algeria, Angola, and Nigeria) continue to grow strongly, notwithstanding occasional supply disruptions in Nigeria; and real GDP growth rates in the range of 5-6 per cent appear likely to continue at least through 2007.

The Iranian economy is also expanding reasonably rapidly, aided by high oil export revenues; but growth prospects are somewhat clouded by the possibility of wider economic sanctions that might be imposed in response to Iran’s continued nuclear development programme.

The non-oil exporting economies in these regions (most notably Egypt and South Africa) are also growing strongly this year and may reasonably be expected to continue with similar performance in 2007. In Africa, the strong economic performance of the past few years (and prospects for the future) has been significantly aided by the relative absence of armed conflicts, despite continuing difficulties in Somalia, Sudan, the Congo, and Cote d’Ivoire, and the mess in

Zimbabwe. In the Middle East, the economy of Lebanon was clearly devastated by the August war, and growth this year in the significant-sized Israeli economy also felt a sharp but brief setback.

In Iraq, escalating sectarian violence is undoubtedly an important impediment to more rapid economic recovery, although there are some indications that economic activity is rising in more peaceful regions of the country. On balance, if growth in the rest of the world economy is slowing by about one percentage point between 2006 and 2007, it is reasonable to expect that this slowdown will be reflected in somewhat less buoyant global commodity markets and more generally in a modest negative spillover to growth in Middle East and Africa.

Meanwhile, the economies of the Gulf region are expected to continue on their strong economic growth path despite last year’s sizeable drop in share prices and the rise in short-term interest rates. The surge in oil revenues gives the GCC countries the means to increase fiscal expenditures, undertake mega infrastructure projects and invest in various industries. The government sponsored projects will provide a stimulus for private sector to grow.

After growing at 6.8 per cent in 2005, and an estimated six per cent in 2006, real GDP growth for the region is forecast to grow at a healthy five per cent in 2007. The UAE is believed to have recorded the highest real GDP growth in 2006 of 10.2 per cent, followed by Qatar 7.5, Kuwait 6.5, Saudi Arabia 6.2, Bahrain six and Oman five per cent.

Qatar

Qatar is to lead in terms of real GDP growth in 2007 rising by 8.6 per cent as it has boosted its natural gas production by 42 per cent on top of the 8.9 per cent increase in 2006. UAE will follow with real GDP growth of 7.2 , Oman 5.9, Bahrain five, Saudi Arabia 4.2 and Kuwait 4.1 per cent. The lower growth rates projected for 2007 compared to 2006 is mainly due to the slight decline in crude oil production expected this year.

The region’s stock markets are not far away from reaching a trough. However, the markets are expected to stay thereafter in a trading range to establish a solid base. The positive outlook of the GCC economies will be affected only marginally by the sharp slide in share prices. The decline in the “wealth effect” of shareholders in the region will have some impact on overall consumption expenditures, but this will be more than compensated for by the expansionary fiscal policies followed by the governments in the region.

The region’s infrastructure such as roads, sewages and water networks badly suffered in the past decade and needs overhauling. Over $1,000 billion has been announced in infrastructure and real estate projects in the GCC, with more than half of these projects already underway, translating into one of the largest construction booms in the world. There are also plans to spend more on education and health care and on schemes to encourage private sector employment. The oil producing countries of the region are also spending billion to boost their oil production and refining capacity to meet future world demand.

Inflation in most of the GCC countries is expected to retreat in 2007 as supply bottlenecks ease, especially in housing markets of the UAE and Qatar. The average inflation rate of the six Gulf countries was as low as 0.8 per cent in 2002 before rising to four per cent in 2006. The rate is projected to edge slightly lower to 3.6 per cent in 2007. A breakdown of the aggregate figure shows the UAE had the highest inflation rate in the GCC in 2006 at 9.9 per cent, due to rising rents, which has a weighting of 30 per cent in the consumer price index.

Inflation in the UAE is expected to drop to seven per cent in 2007. Saudi Arabia’s inflation rate is likely to remain unchanged at the 2006 level of 1.8 per cent. In Kuwait, which revalued its currency in 2006 to contain imported inflation, price growth will fall to 2.7 in 2007 from 4.2 per cent in 2006. Qatar’s inflation is likely to drop from 8-6 per cent in 2007. Oman’s inflation will slip to 2.5 in 2007 from 3.1 per cent in 2006 while Bahrain’s inflation is expected at 2.7 from 3.1 per cent last year.

Oil prices: Oil prices have risen from an average of $35 a barrel in 2004 to $53 a barrel in 2005 and an average of $65 in 2006, an increase of more than 22 percent on 2005 level. Total oil revenues are estimated to have reached $400 billion for the six Gulf countries in 2006, up from $320 billion in 2005. External current account surpluses are estimated at $170 billion in 2006, up six per cent on the year before and accounting for 28 per cent of GDP, compared to 13 per cent of GDP in 2003.

Nominal GDP growth rates are expected to surge this year supported by expansionary fiscal policy and an active private sector. After growing at the average rate of 25.7 per cent to $597 billion in 2006, this year’s nominal GDP for the six Gulf states could exceed $700 billion. Saudi Arabia, which saw its nominal GDP grow to $347 billion in 2006 and it is forecast to hit $380 billion in 2007. The Kingdom used part of its oil surplus to reduce its huge domestic debt, while other Gulf countries used the surplus to increase their foreign asset accumulation.

Saudi government debt dropped from 46.5 per cent in 2005, 28 per cent in 2006 and is forecast to decline further to 24 per cent of GDP in 2007. Recent estimates put Saudi Arabia foreign assets at $250 billion, Kuwait’s foreign assets are believed to have grown to well over $200 billion recently, while UAE’s foreign assets are estimated at more than $500 billion.

Unlike in the 1970s, when the oil windfalls were largely recycled into US Treasuries and the western banking system, there are indications that GCC governments and companies are investing in other Arab countries — primarily into projects, private equity, real estate and capital markets in Egypt, Jordan, Lebanon, Morocco and Tunisia, underpinning economic growth and job creation in these countries. Arab economies are surging on higher oil prices, which quadrupled in the four years to July, 2006, and more domestic and foreign investment as governments sell off their assets and ease restrictions on private business.

A latest economic report by the Standard Chartered Bank shows that Middle East economies will grow by an average 9.6 per cent this year in nominal terms, compared with 16.9 per cent last year. According to the bank, all the economies of the Gulf will continue to grow in 2007, though at a slower rate as oil prices fall from last year’s record high and OPEC mandated oil production cuts take effect. At the same time, HSBC in its report said that the region’s governments are likely to push forward the reform process in order to create jobs and wealth for their rapidly growing populations.

Iraq

IRAQ’s economy is doing remarkably well. Real estate is booming. Construction, retail and wholesale trade sectors are healthy, too, according to a report by Global Insight in London. The US Chamber of Commerce reports 34,000 registered companies in Iraq, up from 8,000 three years ago. Sales of secondhand cars, televisions and mobile phones have all risen sharply. Estimates vary, but one from Global Insight puts GDP growth at 17 per cent in 2005 and projects 13 per cent for 2006. The World Bank has it lower: at four per cent this year. But, given all the attention paid to deteriorating security, the startling fact is that Iraq is growing at all.

However, many economists are of the opinion that Iraq is a crippled nation growing on the financial equivalent of steroids, with money pouring in from abroad. National oil revenues and foreign grants look set to total $41 billion this year, according to the IMF. Unemployment runs between 30--50 per cent. Many former state industries have all but ceased to function. As for all that money flowing in, much of it has gone to things that do little to advance the country's future.

Iraq really needs hospitals, highways and power-generating plants. Real-estate prices have risen several hundred percent, suggesting that Iraqis are more optimistic about the future than most Americans are. A government often accused of being no government at all has somehow managed to take its first steps to liberalise the highly centralised economy of the Saddam era. Iraq has a debt-relief deal with the IMF that requires Baghdad to end subsidies and open up its gas-import market. Earlier this year the government made the first hesitant steps, axing fuel subsidies—and sending prices from a few cents a litre to around 14.

Iraq still lacks a functioning banking system. Though there's an increasing awareness of Iraq as a potential emerging market, foreign investors won't make serious commitments until they are assured a measure of stability. Real progress won't be seen until the security situation clears up. Local moneymen are scarcely more bullish on the long term. In Iraq's nascent bond market, buyers have so far been willing to invest in local-currency Treasury bills with terms up to six months.

One thing is certain about the Iraq war: It has cost a lot more than advertised. In fact, the tab grows by at least $200 million each and every day. In the months leading up to the launch of the war three years ago, few Bush administration officials were willing to comment publicly on the potential costs to the United States. After all, no cost would have been too high if the United States faced an imminent threat from an Iraq armed with weapons of mass destruction-- the war's stated justification.

Debate: In fact, the economic ramifications are rarely included in the debate over whether to go to war, although some economists argue it is quite possible and useful to assess potential costs and benefits. The University of Chicago economist Steven Davis and colleagues, who put the likely U.S. cost at $410 billion to $630 billion in 2003 dollars. Another economist puts the final figure at a staggering $1 trillion to $2 trillion, including $500 billion for the war and occupation and up to $300 billion in future health care costs for wounded troops. Additional costs include a negative impact from the rising cost of oil and added interest on the national debt.

The most comprehensive study of Iraqi debts, by the Center for Strategic and International Studies (CSIS), calculates Iraq's total debt to be $127 billion, of which $47 billion is accrued interest (based on 2001 World Bank figures). Iraq owes a further $199 billion in Gulf War compensation and $57 billion in pending contracts signed between the Saddam Hussein regime and foreign companies and governments. Iraq's overall financial burden, according to the CSIS figures, is $383 billion.

Based on these figures, Iraq's financial obligations are 14 times its estimated annual gross domestic product (GDP) of $27 billion--a staggering $16,000 per person. Measured by the debt-to-GDP ratio, Iraq's financial burden is over 25 times greater than Brazil's or Argentina's, making Iraq the developing world's most indebted nation. Iraq is at a crucial phase of economic governance, and if radical changes are not made immediately, then the country may deviate further from its previously anticipated high economic growth, rapid social development, and flourishing business environment.

Egypt

Economic growth accelerated to an estimated 6.8 per cent in fiscal year 2005/06. The Economist Intelligence Unit expects growth to slow gradually over the outlook period, to 6.6 in 2006/07 and to 5.8 per cent in 2007/08. J P Morgan study put growth rate at seven per cent in the current fiscal year 2006/2007 versus 6.8 per cent in the previous fiscal year 2005/2006. External performance remains strong despite the current account surplus falling to 1.6 of GDP in FY2005/06 from 3.1 per cent in the previous year.

The current account has been witnessing surplus for the last four consecutive years and is expected to continue this trend in the current year as well, thus enabling the government to adopt an aggressive reform policy approach. This figure masks the robust performance of exports, which increased by 33 per cent, with export growth accelerating to 52.5 per cent. Imports also increased strongly by 25.8 per cent driven by the buoyant demand in the economy.

Given that imports are over double the value of exports, this resulted in the trade deficit widening. Positively, imports of investment and intermediate goods represented 53.6 per cent of total imports, which bodes well for Egypt’s economic outlook. There were also strong performances in the invisible components of the current account, as tourism, remittances and Suez Canal earnings continued to increase.

Although tourism revenues grew by 12.5 per cent in FY 2006/07, the sector was negatively impacted by the terrorist attacks in April. Visitor numbers into Egypt fell by 5.5 per cent in July, the third consecutive monthly drop. However, we are forecasting a strong recovery in the tourism sector and expect the figures to start improving from August as the conflict in Lebanon resulted in many regional tourists changing their holiday plans to other regional countries, such as Egypt.

Reform: The progress on the reform front has raised and improved Egypt’s profile in international capital markets. Foreign direct investment and inward portfolio flows have risen sharply. FDI into Egypt increased by 56.4 per cent to $ 6.1 billion in FY 2005/06, equivalent to over 5.5 of GDP; this is up from under three per cent of GDP in FY 2003/04. Importantly, non-energy investments accounted for around 70 per cent of FDI, compared with just 33 per cent in FY 2004/05. Meanwhile, portfolio inflows increased to $ 2.8bn in FY 2005/06, up from $ 800 million.

The external sector remains a strong engine of economic expansion, although growth remains broad-based with expansion in private consumption and investments. Robust economic activity is resulting in a pickup in inflationary pressure. Inflationary pressure has been accelerating since June, with the year-on-year CPI increasing by over seven per cent. Along with the strong demand in the economy, other factors driving inflationary pressure are the outbreak of avian influenza which has been placing upward pressure on food prices and reduction in fuel subsidies.

http://www.dawn.com/2007/01/22/ebr9.htm

 

[Contrarian]

Where's India, Pakistan, US, etc, etc

 

[Neo]

India, Pakistan and China are being discussed in dedicated threads already. we do need a thread for US economy.

 

[Contrarian]

we do need a thread for US economy.

LOL, its BIG and its SLOW. Nothing much else really

 

[Neo]

We need members interested in US economy, thats more important than anything else...

 

[Neo]

February 05, 2007
World economies

Russia

THE year 2006 has been better for the Russian economy than was predicted. According to data from the Ministry of Economic Development and Trade, Russia's GDP growth last year was 6.8-6.9%, higher than the forecast of six per cent. However, this is not the only reason for optimism. The trend towards a slowdown in economic growth that has persisted over the past several years has been reversed. In 2003, Russia's GDP grew by 7.3 per cent, in 2004 by 7.2 per cent, and in 2005 by 6.4 per cent. Also, total investment in the Russian economy increased by 19.1 per cent over the same month in 2005. The 2006 annual indicator may be 13.2 per cent higher than the 2005 figure.

Russia's economic indicators for last year are good not only because they exceeded the forecast. An increase of less than one percentage point is not in itself a great achievement. Only this year's performance will show whether the year 2006 has signaled a turning point or not. However, it is obvious that Russia's economic performance last year has proven to be better than the year before in terms of the key macroeconomic indicator.

The Russian economy hit rock bottom in 1998, when GDP had fallen by nearly 40% from the 1991 level. The decline lasted for seven years after the start of reforms, and in 1999 Russia's economy began to slowly grow again. It took eight years of growth, including last year, for Russia's GDP to fully recover. The 2006 figure means that Russia's transition to a market economy is complete. The economy has been fully restored to its pre-reform level.

Among other Economic Indicators, inflation last year was about 9%, its lowest level in 15 years. It is also significant that for the first time in the past several years inflation is no longer recorded in double digits. In 2005, Russia's annual inflation was 10.9 per cent. The initial forecast for inflation last year was 7-8.5 per cent, which means that the planned targets had not been met. Nevertheless, the year-end results are respectable.

Russia's lasting economic growth has served as the foundation for achieving the level of inflation in 2006. The government's efforts to restrict the money supply and the Stabilization Fund's efforts to sterilize it have also had a positive effect. However, there are still reserves left for curbing inflation in 2007. Russian commodity producers' competitive potential has not been fully taken advantage of.

Foreign investment is a major indicator of investment activity in general. A total of $130 billion in foreign capital had accumulated in the Russian economy by late September of last year. In January-September, the Russian economy received $35.3 billion in foreign investment, or 31.7 per cent more than in the same period in 2005. It is interesting that Russian investment abroad amounted to nearly the same sum, $34.6 billion, registering a 51.4% increase over the previous year's figure.

There is little doubt that the total figure for 2006 will be even higher. However, Russian investment abroad will still nearly equal foreign investment in Russia. On the one hand, it is not so bad that Russian investment abroad is growing. On the other hand, this growth far outpaces the growth of investment in Russia. This means that in the near future Russian investment abroad will exceed foreign investment in the Russian economy. The country is becoming a kind of global donor.

Under the new forecast, however, real GDP growth will slow somewhat in 2007-08, although high oil prices will continue to underpin buoyant expansion of domestic demand, limiting the extent of the output slowdown. Strong unsterilised foreign-exchange inflows mean that inflation will ease only moderately. The economy should grow approximately 5.7 per cent a year in 2007-2009, says a draft forecast for Russia's social and economic development in 2007 and up to 2009.

Prices for Urals brand crude oil are forecast at $58 per barrel in 2007, $53 in 2008 and $48 in 2009. Thus, despite the growth in the oil price forecast, the GDP growth forecast remained practically unchanged. A government forecast in March put prices for Urals oil at an average of $49 per barrel in 2007 and at $46 in 2008-2009. GDP was forecast to grow 5.7 in 2007, 5.8 in 2008 and six per cent in 2009.

The current-account surplus will narrow gradually, but is projected still to amount to about $75 billion (five per cent of GDP) in 2008. The Kremlin's determination to establish control of Russia's energy sector means that foreign investors will be limited to minority stakes and that the unfavourable production-sharing agreements from the 1990s will be revised. Forcing Shell (UK) to cede control of Sakhalin-2 to Gazprom is likely to be a precursor of similar moves against BP (UK) and Total (France).

Australia

THE government has revised down its forecast for economic growth this fiscal year to 2.5 per cent because of the worst drought in a century. The government had forecast economic growth of 3.25 per cent for the fiscal year ending June 30, 2007, when it released it annual budget in May. The Australian economy remains sound although its is buffeted by severe drought. The drought is the main downside risk to the economy, with official estimates showing gross domestic product for the farm sector down by 20 per cent this fiscal year.

The government's midyear budget review also boosted its budget surplus forecast to A$11.8 billion ($9.3 billion), from the May forecast of A$10.8 billion. The upward revision was counter to market expectations that centered on a paring back of the underlying surplus to A$10.4 billion (US$8.2 billion). The review raised the forecast average inflation in 2006-07 to 3.0 percent from the 2.75 per cent year average forecast in the May budget. The forecast for average inflation rate in 2007-08 was unchanged at 2.5 per cent. The economy expanded by just 0.3 per cent in the three months to September, compared with the previous quarter, the slowest growth rate in more than three years.

The government has raised inflation forecast from 2.75 per cent to 3.0 per cent, at the top end of the Reserve Bank of Australia's 2—3 per cent target band. Rising prices for fruit and fuel had boosted inflation, but it was expected to drop back into the middle of the 2008. Australia's central bank has been pursuing a policy of interest rate rises in recent months, and increased base rates by a quarter of a percentage point to 6.25 per cent in November in a bid to keep a lid on inflation. However any further rises in inflation, outside the bank's target band, may be enough to provoke an interest rate rise in early 2007.

The Australian economy will grow faster over the next nine months, helped by increased consumer spending and a surge in exports, a report shows. But stronger growth will lead to one more interest rate rise. Growth is expected to accelerate to 3.1 per cent during the year to September 2007 up from 2.2 per cent in the year earlier period, says a survey from Westpac/Melbourne Institute Leading Index of Economic Activity. Continuing strong consumer spending is helping offset the impact of three interest rate increases this year, prompting businesses to resume investing to keep pace with demand.

Canada

THE Canadian economy bounced back in the late stages of 2006 after a weak spell, leading it to project solid growth of 2.3 per cent for this year and 2.8 per cent in 2008. The estimates were unveiled in the latest release of the central bank's monetary policy report. The 2007 projection is revised slightly downward from what the Bank of Canada governing council estimated — 2.5 per cent — in its last report in October. The 2008 estimate is in line with the previous forecast. A slowdown in the U.S. economy, due mostly to weak auto and housing sales, spread to Canada, leading to estimated growth of only 1.6 per cent for the last six months of 2006 — weaker than the 2.4 per cent the Bank of Canada had expected.

But based on a range of indicators, the Canadian economy is judged to have been operating at, or just above, its production capacity at the end of 2006. Weakness in the US economy remains the biggest risk to the Bank of Canada's projections. But it said that weakness has eased somewhat, indicating the slowdown in housing and auto sectors has not spread to other sectors of the U.S. economy, and consumer spending, overall, remains solid. Moreover, inventories in the United States appear to have adjusted, as they have in Canada. Inflation is expected to be in the one per cent range for the first half of the year and return to the two per cent level next year.

Global oil demand in 2006 was growing at little over one per cent in a year when global economic growth was somewhere between 4.5—5 percent. The demand for oil in developed economies such as Japan, Western Europe, Canada and the United States was either flat or in decline last year. If oil prices rebound, they won't hit new records. Instead a more realistic bounce would take oil to just US$60 or US$70 a barrel, which is well below its recent high of US$77 last August. The price of crude oil has fallen more than 30% since August -- including an 18% drop this month. It closed at US$51.99 a barrel in New York.

According to a senior international economist at Capital Economics, the U.S. Energy Information Agency has cut its 2007 global demand forecast to 1.5 million barrels per day from a previous forecast of 1.9 million barrels per day. This has sent forecasts of spare capacity (or excess supply) up to their highest levels since 2002. When oil prices were at their peak last year, the consensus was that the level of spare capacity would remain extremely low, with producers continuing to pump almost flat-out.

http://www.dawn.com/2007/02/05/ebr8.htm

 

[Janbaz]

LOL, its BIG and its SLOW. Nothing much else really

Yes and getting hyper-inflated due to Mr. Bush's antics in Asia. Slow growth and high inflation two key components of it. Now that the tech boom is over and American auto makers are going in the drain as well, fears are rising for the average citizen. In Canada, auto plant workers are being laid off regularly due to fall in demand for products by GMC, Ford, Chevrolet and Buick. Lets wait and see where it gets to!

 

[sigatoka]

Yes and getting hyper-inflated due to Mr. Bush's antics in Asia. Slow growth and high inflation two key components of it. Now that the tech boom is over and American auto makers are going in the drain as well, fears are rising for the average citizen. In Canada, auto plant workers are being laid off regularly due to fall in demand for products by GMC, Ford, Chevrolet and Buick. Lets wait and see where it gets to!

I dont get it? How high is inflation in U.S. at the moment? U.S. growth for a developed rich economy is doing well as long as it hits 2% a year which im assuming it is unless i have missed something?

The U.S. economy is worth trillions of dollars, a weakly performing car industry is actually insignificant to an economy that is heavily services based.

 

[Janbaz]

I dont get it? How high is inflation in U.S. at the moment? U.S. growth for a developed rich economy is doing well as long as it hits 2% a year which im assuming it is unless i have missed something?

The U.S. economy is worth trillions of dollars, a weakly performing car industry is actually insignificant to an economy that is heavily services based.

Well, the car industry is massive and if plants are downscaled so are the dealerships that fall under the service sector. One other thing, the housing market is also being hit as people are losing confidence in the policies. Maybe brother T. John can verify that. Also the internal debt has risen to $8.97 trillion, inflation in 06 was at 3.7% (rising) and unemloyement rate was 4.5%.

 

[Neo]

Afghan domestic income up 450 pct over past 4 years
Wednesday February 14, 2007

KABUL: Afghanistan's domestic income grew to 22.6 billion Afghanis (450 million U.S. dollars) in 2006, a drastic increase of 450 percent over the past four years, a senior official said.
The income was expected to reach 35.7 billion Afghanis (714 million dollars) in 2007, said Finance Minister Anwarul Haq Ahadi.

Afghanistan's budget in 2007 will include the normal budget, the development budget and the foreign budget, he said.

The total budget was set at 53.6 billion Afghanis, which comprises 35.7 billion Afghanis (714 million dollars) from domestic income and 17.8 billion (356 million dollars) from foreign aid.

http://www.paktribune.com/news/index.shtml?168897

 

[Janbaz]

US economy gaining momentum: Fed chief


WASHINGTON, Feb 14: The US economy is gaining momentum after a soft patch induced by a housing slump, but inflation remains a “predominant” concern, Federal Reserve chairman Ben Bernanke told Congress on Wednesday.

Bernanke, delivering the central bank’s semi-annual monetary policy report, unveiled a forecast for US gross domestic product growth (GDP) in a range of 2.5 to 3.0 per cent for 2007.

That is below the 3.4 per cent pace in 2006 and a notch down from last year’s forecast, but Bernanke said the economy “appears to be making a transition from the rapid rate of expansion over the preceding several years to a more sustainable average pace of growth.”

The forecast for 2008 calls for growth in a range of 2.75 to 3.0pc.

The upbeat outlook along with the renewed warnings on inflation appeared to suggest that Bernanke and his Fed colleagues are not considering rate cuts to stimulate activity and may hike rates later in the year if inflation pressures persist.

The US central bank chief said the economy does not seem to be faltering despite a severe slump in home sales, with consumer spending and other segments of the economy picking up the slack.

“The resilience of consumer spending is all the more striking given the backdrop of the substantial correction in the housing market that became increasingly evident during the spring and summer of last year,” he said in remarks prepared for the Senate Banking Committee.

He noted that the problems of the real estate sector “do not seem to have spilled over to any significant extent to other sectors of the economy.”

”Overall, the US economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,” the Fed chief said.

But Bernanke highlighted concerns that inflation may take some time to abate, and that this is the most serious risk for the economy. But he noted that Fed policymakers are holding to their forecast for diminishing price pressures, for now.

The Fed’s official forecast calls for “core” inflation, excluding food and energy prices, to be in a range of 2.0 to 2.25 per cent for 2007. That is slightly above what economists see as the Fed's “comfort zone” of under 2.0 per cent.

The forecast calls for 2008 core inflation in a more acceptable range of 1.75 to 2.0 per cent.

“There are some indications that inflation pressures are beginning to diminish,” he said.

—AFP

The Dawn.
http://www.dawn.com/2007/02/15/ebr15.htm

 

[Neo]

February 19, 2007

World economies

Middle East

THE economies of the Gulf region are expected to continue on their strong economic growth path despite last year's sizeable drop in share prices and the rise in short term interest rates. The surge in oil revenues gives the Gulf Cooperation Council (GCC) countries the means to increase fiscal expenditures, undertake mega-infrastructure projects and invest in various industries. The government sponsored projects will provide a stimulus for the private sector to grow.

After growing at an average of around 8.5 in 2003, 5.9 in 2004, and 6.8 per cent in 2005, and an estimated six per cent in 2006, real gross domestic product (GDP) growth for the region is forecast to grow at a healthy 5.0 per cent in 2007.

The United Arab Emirates (UAE) is believed to have recorded the highest real GDP growth in 2006 of 10.2 per cent, followed by Qatar at 7.5 , Kuwait 6.5, Saudi Arabia 6.2, Bahrain six and Oman five per cent.

GDP: Qatar is expected to lead the pack in terms of real GDP growth in 2007 rising by 8.6 per cent as the country boosts its natural gas production by 42 per cent on top of the 8.9 per cent increase of 2006. The UAE will follow with real GDP growth of 7.2 per cent, Oman 5.9 per cent, Bahrain five per cent, Saudi Arabia 4.2 per cent, and Kuwait 4.1 per cent. The lower growth rates projected for 2007 compared to 2006 is mainly due to the slight decline in crude oil production expected this year.

The index of the GCC stock markets dropped by more than 60 per cent from the peak attained in late 2005, and is down by 46 per cent since the beginning of the year. The unravelling of stock market bubbles tend to be a complex and long process. It took the US and the UK stock markets three years to reach their trough following the burst of the technology bubble in March 2000.Their respective indices dropped by 50 per cent from their peaks and then assumed a slow and gradual uptrend in the following three years. At present the two markets have not yet regained their previous highs.

Although retail investors appear to have lost hope of a strong price recovery any time soon, nevertheless, the region's stock markets are not far away from reaching a trough. However, the markets are expected to stay thereafter in a trading range to establish a solid base. Any uptrend that is likely to follow will not be anywhere close to the boom conditions seen in 2003-2005. It will be those with a longer-term investment horizon and reasonable expectations who will see the market through this phase. The positive outlook of the GCC economies will be affected only marginally by the sharp slide in share prices.

Wealth: The decline in the "wealth effect" of shareholders in the region will have some impact on overall consumption expenditures, but this will be more than compensated for by the expansionary fiscal policies followed by the governments of the region. Saudi Arabia is projecting a 13 per cent increase in government, expenditures in its 2007 budget, to SR380 billion ($101 billion) out of which SR140 billion ($37.3) or 37 per cent are allocated for capital expenditures. The region's infrastructure such as roads, sewage and water networks had suffered in the past decade and badly need overhauling.

Over $1,000 billion has been announced in infrastructure and real estate projects in the GCC, with more than half of these projects already underway, translating into one of the largest construction booms in the world. There are also plans to spend more on education and healthcare and on schemes to encourage private sector employment. The oil producing countries of the region are also spending billions to boost their oil production and refining capacity to meet future world demand.

Inflation in most of the GCC countries is expected to retreat in 2007 as supply bottlenecks ease, especially in the housing markets of the UAE and Qatar. The average inflation rate of the six Gulf countries was as low as 0.8 per cent in 2002, 1.3 per cent in 2003, 1.8 per cent in 2004, 2.7 per cent in 2005 before rising to four per cent in 2006. The rate is projected to edge slightly lower to 3.6 per cent in 2007. A breakdown of the aggregate figure shows the UAE had the highest inflation rate in the GCC in 2006 at 9.9 per cent, due to rising rents, which has a weighting of 30 per cent in the consumer price index.

Inflation in the UAE is expected to drop to seven per cent in 2007. Saudi Arabia's inflation rate is likely to remain unchanged at the 2006 level of 1.8 per cent. In Kuwait, which revalued its currency in 2006 to contain imported inflation, price growth will fall to 2.7 per cent in 2007 from 4.2 per cent in 2006.Qatar's inflation is likely to drop from eight per cent to six per cent in 2007. Oman's inflation will slip to 2.5 per cent in 2007 from 3.1 per cent in 2006 while Bahrain's inflation is expected at 2.7 per cent from 3.1 per cent last year.

Oil prices have risen from an average of $35 a barrel in 2004 to $53 a barrel in 2005 and an average of $65 in 2006, an increase of more than 22 per cent on 2005 level. Total oil revenues are estimated to have reached $400 billion for the six Gulf countries in 2006, up from $320 billion in 2005. External current account surpluses are estimated at $170 billion in 2006, up six per cent on the year before and accounting for 28 per cent of GDP, compared to 13 per cent of GDP in 2003.

Nominal GDP growth rates are expected to surge this year supported by expansionary fiscal policy and an active private sector. After growing at the average rate of 25.7 per cent to $597 billion in 2006, this year's nominal GDP for the six Gulf states could exceed $700 billion. Saudi Arabia saw its nominal GDP grow from $215 billion in 2003 to $347 billion 2006 and it is forecast to hit $380 billion in 2007. The Kingdom used part of its oil surplus to reduce its huge domestic debt, while other Gulf countries used the surplus to increase their foreign asset accumulation.

Debt: Saudi government debt dropped from 82 per cent of GDP in 2003 to 46.5 per cent in 2005, 28 per cent in 2006 and is forecast to decline further to 24 per cent of GDP in 2007. Recent estimates put Saudi Arabia's foreign assets at $250 billion, Kuwait's foreign assets are believed to have grown from $60 billion in 1995 to well over $200 billion recently, while UAE's foreign assets are estimated at more than $500 billion.

Unlike in the 1970s, when the oil windfalls were largely recycled into US Treasuries and the Western banking system, there are indications that GCC governments and companies are investing in other Arab countries — primarily into projects, private equity, real estate and capital markets in Egypt, Jordan, Lebanon, Morocco and Tunisia, underpinning economic growth and job creation in these countries.

The world is coming to terms with the new economic phenomenon of persistently high growth in the GCC regions similar to the boom economic conditions in China, India and Russia. All sectors are forecast to do well especially insurance companies, healthcare, public utilities, transport, telecommunications and IT companies, construction and related manufacturing, petrochemicals, pharmaceuticals, fast food, consumer durables, entertainment, tourism and various professional services among others. Banks and brokerage firms will experience a slow down in profitability growth, to around 10-15 per cent, down from 22 per cent in 2006.

Despite the likely decline in growth of retail spending due to the wealth-shrinking effect associated with the sharp slide in equity prices of 2006, consumer demand is expected to stay strong. Equally important, there is plenty of steam left in the investment cycle, as the governments and the private sector look to implement expansionary projects across most economic sectors. The bubbly conditions of the past few years will not continue, though there will be no slump.

Competition will be on the rise as the days of easy money generated by having exposure to the region's stock and real estate markets are over. Cost control will become increasingly challenging. For many businesses, the biggest issue will be the shortage of skilled employees. While the economies of the region will remain sensitive to adverse regional developments and uncertainties, nevertheless, they are expected to maintain the current uptrend for several years to come supported by the positive outlook for the world oil market, and a more confident and efficient private sector.

http://www.dawn.com/2007/02/19/ebr9.htm