(MENAFN - Khaleej Times) The Gulf Cooperation Council countries are set for a 4.2 per cent economic growth this year, at a pace slower than an earlier estimate, Bank of America Merrill Lynch said in its latest forecast.
As the GCC economy "accelerates" in 2010 from its slowest-ever growth in decades, Qatar and Saudi Arabia would contribute more than 70 per cent of the region's growth in the next two years, the global leading financial advisory company said.
"It is obvious that the V-shaped recovery we used to expect in the region is no longer the case. We see the GCC's gross domestic (GDP) growth accelerating to 4.2 per cent from 0.6 per cent in 2009," wrote Turker Hamzaoglu, economist at BofA Merrill Lynch, in a research report.
"Since we expect a significant deleveraging in UAE, which may have cross-border implications, we favour Qatar and Saudi Arabia as quality plays. The two contribute more than 70 per cent of the 2010-11 growth in the GCC," said the report.
In the UAE, sentiment remains cautious and the GDP growth will recover only gradually in 2010, the report said. "The uncertainty on debt restructuring has been creating a snowballing effect in the corporate sector as companies and banks do not see how much pain they will stomach with the restructuring."
BofA Merrill Lynch expects the deleveraging in Dubai to impact corporate balance sheets across the UAE.
The UAE's total debt redemptions over the next three years average $30 billion annually, and Dubai accounts for roughly two-third of these redemptions. "Hence, a scenario of forced deleveraging is still likely," the report said.
Only one-third of the UAE's total projects in the pipeline, valued at $1.4 trillion as of 2009, has been either cancelled or put on hold as of January 2010. Ninety three per cent of these projects that are put on hold or cancelled are construction projects, the report said.
"Given the excess in the real estate market and the level of leverage, we believe that the consolidation in Dubai will be a lengthy process."
While Qatar "stands tall" with its strong sovereign balance sheet and the ongoing LNG expansion, Saudi Arabia, with its big domestic market, should post a strong recovery in 2010. While Oman will see the highest non-oil growth of 5 per cent in the region in 2010, Kuwait "finally makes a move forward" using its strong fiscal muscle, it said.
However, BofA Merrill Lynch saw better growth prospects in the GCC periphery, "where there is no risk of contagion."
Underpenetrated domestic markets, stronger bank balance sheets and "no excesses" in these countries are additional assets, the report pointed out. "Egypt is our top macro pick in the Middle East North Africa region."
By Issac John