After China flexibility of the Yuan exchange rate against U.S. dollar
China partially loosen its currency against the dollar after the global pressure ahead after the G-20 summit in Toronto
The International Finance Institute has revealed in a recent study on the economies of the GCC countries are not required to follow the model of China's recent move, which is reflected in its flexibility by giving the exchange rate of its currency against the U.S. dollar, after having raised again the subject of Gulf currencies allied to U.S. dollar.
The Institute explained that the Chinese move will help reduce the trade deficit between China and the United States, as the GCC countries step will not achieve the same purpose.
The institute explained the high oil prices and economic activity has reflected back on the current account balance for each of the GCC countries and China, where it reached 256 and 246 billion dollars each in 2008. After the decline in oil prices the current account balance declined as well to 47 billion for the Gulf States.
According to the Institute It is expected that the total value will amount to 983 billion dollars in 2010, a growth rate of 4.4 percent compared with the year 2009, as will raise the net current account extra of 47 billion dollars in 2009 to 128 billion in 2010, then to 163 billion in 2011. As a result of this there will be net foreign assets of the GCC to 1.2 trillion dollars in 2010, and then to 1.3 trillion dollars by the end of 2011, which is equivalent to 122 percent of total domestic product.
Expectations of the report showed that Saudi Arabia will grow 3.4 percent in 2010, and the United Arab Emirates by 2 percent, Kuwait by 3.2 percent, Qatar 13.9 percent, Oman 5.1 percent and Bahrain 3.1 percent, also the oil sector will grow by 2.6 percent in Saudi Arabia, and 2.7 percent in Kuwait and 22 percent in Qatar , 7.8 percent in Oman and 0.4 percent in Bahrain, while the non-oil sector is growing by 3.7 percent in Saudi Arabia and 1.8 percent in the UAE , 3 .3 percent in Kuwait and 6 percent in Qatar , 4 percent in both Oman and Bahrain.
According to estimates by the Institute, the net current account surplus will reach 124 billion, of which 36 billion in Saudi Arabia and the UAE's 16 billion and 45 billion in Kuwait and in Qatar 19 billion and six billion to two billion in Oman and Bahrain.
The report also expects the expenditure policies and the presence of moderate view of materials and housing to contribute in declining the globally prices.
The Institute has emphasized that it has become clear now after nearly two years on the global crisis, the source of main threat to the recovery of the Gulf economies is the banking sector in these countries.
The institute said: The bank credit which belongs to the private sector has slipped strongly in the Gulf this year, with the expectation to increase the allocation by 40 percent to reach ten billion dollars.
However; Saudi banks is considered to be in a better situation, since the prices of real estate in general is partly-stable, and the proportion of loans to deposits amounting has an acceptable rate of around 80 percent.
The report said: The problems of Dubai's debt will affect as well the UAE banks in particular, and the Gulf banks in general, which will also contribute to reduce the size of investment flows coming to the region.
The institute confirmed that the global financial crisis, has led to the foreign funds deposited with banks in the region. This resulted in high cost of finance.
Luckily, the country has not seen any case of bankruptcy within its banks, for several reasons, including: the official support, and exposure limited to the troubled assets that has poisoned the budgets of Western banks, as well as the readiness of governments in the region to save local banks in the event of exposure to formal or individual risks.
As suggested by the Institute, that 2009 has saw the emergence of a new operational environment which will continue to put pressure on the performance of Gulf banks in the medium term, and forced them to adapt its business model, but in return, will benefit the region's banks from the expected improvement in economic activity and business environment, as well as continuing the government support .