Inflation, economic pressures hover over GCC

The countries, which exhibited resilience during the peak of the global downturn, are now exposed to inflation and other economic pressures, an economist has said.

The GCC states comprise of Kuwait, Bahrain, Saudi Arabia, Qatar, UAE and Oman.

"Although the GCC economies exhibited remarkable resilience during the economic turmoil, they remain exposed to potential sources of renewed macroeconomic volatility in the medium term," NCB Capital chief economist Jarmo Kotilaine said in GCC Monthly Economic Bulletin.

According to Kotilaine, in addition to increasingly elevated inflationary expectations, there are external pressures mainly in the area of food where reliance on imports has grown dramatically.

"Oil prices remains the single most important risk factor with the potential to trigger a recession but also to fuel an inflationary boom," Kotilaine added.

However, the relative fiscal health of the region remains an effective line of defense for even a renewed downturn, he said.

In this context, he cited the example of Saudi Arabia, which saw credit rating agency Moody's raising its foreign and local currency government debt ratings from A1 to Aa3, the fourth-highest grade, with a stable outlook.

The key to sustainable growth is timely evolution to private sector-led growth and downside risks in the GCC economies look manageable, he added.