Barclays cuts economic growth forecasts for Persian Gulf nations on lower oil
The sustained weakness in oil prices tarnishes the economic outlook for countries in Persian Gulf, according to Barclays which on Tuesday cut its growth forecasts for nations in the region and downgraded its recommendation on corporates in the area.
Despite the mild recovery in oil prices over the past few weeks, Barclays still believes prices will move lower again before they rise. The bank expects Brent to average $51/barrel (bbl) in 2015 and $60/barrel in 2016, which leads it to cut macroeconomic forecasts for countries within the Gulf Cooperation Council (GCC).
GCC nations contain all Arab states of the Persian Gulf, except for Iraq. Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Collectively for these nations, Barclays now forecasts GCC gross domestic product (GDP) growth could average 3.7% year on year in 2015 compared to 3.8% estimated in 2014.
Lower oil means erosion of current account surpluses and widening fiscal deficits, said Barclays. “The GCC 2014 cumulative current account surplus of $290bn in 2014 will be largely eroded in 2015, and most countries, except Kuwait and the UAE, could run current account deficits. Barring Kuwait, we expect all to run fiscal deficits,” it added.
That said, Barclays said that the impact on growth is likely to be modest as banks balance sheets are solid and liquidity conditions across GCC are healthy, with liquid asset buffers at comfortable levels.
However, Bahrain and Oman are most vulnerable, as their credit metrics look increasingly vulnerable should oil prices remain within a range of $50-60/bbl over the next two years. By contrast, for Qatar and the UAE (Abu Dhabi and Dubai) sovereign credits, “their safe haven status remains relatively unchallenged given the large buffers they hold.”
As a result, Barclays cuts companies in the GCC to 'market weight' from 'overweight'. “Our change in view is driven to a large extent by lower oil prices, which will result in a softer macroeconomic fundamental backdrop and dampen the historically strong technical drivers for GCC bonds,” said the bank.