GCC to continue spending on projects despite oil price drop

Gulf governments will continue to spend on mega projects, development programs and social welfare initiatives despite the sharp drop in the price of oil in the second half of 2014, top economists in the region have said.
"Unlike most emerging markets, emerging Asia's growth will remain elevated, in spite of China's deceleration, because India will compensate for it.
"Emerging Asia is still growing twice as fast as the rest of the world's emerging markets which themselves are outpacing growth in developed economies by two to one. The GCC is well positioned to benefit from this growth," Asiya Investments' Chief Economist Francisco Quintana, said yesterday.

Emirates NBD's Head of Research and Chief Economist Tim Fox and Quintana presented a 2015 outlook for Gulf countries, emerging markets and global growth, in a Kuwait seminar.
"There is a consensus that crude oil prices will naturally change directions and begin to gradually increase, an increase that will likely to be drastic if political instability increases in certain parts of the Middle East," Quintana said.
"Continued geopolitical tensions, social unrest in Egypt after the coming elections, conflict escalation in Libya and Syria are all potential oil price drivers," he added.

However, even with the unfortunate scenario of unrest continuing in the Middle East, it is very unlikely to see the price of crude oil averaging above USD 80 by year-end, unless one or both of the following two events take place.

The first is negative outcome of negotiations on Iran's nuclear program that are scheduled for 2015 second quarter and the second is OPEC members voting to reduce production to boost the price of oil.
"Low crude oil price could stimulate growth globally and especially in Europe and emerging economies, which now have access to cheaper raw material and logistics costs. Emerging economies will also attract new capital inflows in Asia and other parts of the world," Fox said.
In such an economic environment, all eyes should be on Emerging Asia, said Quintana.
Geopolitical risks govern the region this year and could lead to a contagion to the Gulf countries, affecting tourism in countries such as the UAE and Qatar, said Fox.

The Gulf Cooperation Council is a regional intergovernmental political and economic union. Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.