Despite monthly declines in April and May, annual money supply growth has accelerated to 10.1% y/y in May from 5.2% y/y in December 2011. In contrast to most other GCC states, it has been quasi money (FX and longer term BD deposits) that has driven the increase in broad money supply growth this year.
“Public sector credit growth has accelerated year-to-date after slowing sharply in 2H 11. However, as government deposit growth has remained in double digits this year, public sector borrowing is not discouraging banks from increasing lending to the private sector as well,” it said.
“Indeed, private sector credit has continued to rise steadily after bottoming in April 2011 due to the political turmoil in Bahrain. Private sector credit grew 18.4% y/y in May, up from 15.0% y/y in December 2011. We have revised up our end-2012 forecast for private sector credit growth to 7.5% from 6.5% previously.”
“After average deflation of -0.4% in 2011, inflation has picked up in the 1H 12 reaching 2.9% y/y in May. Although housing costs are still lower than they were a year ago, they have risen on a monthly basis since March, are likely to continue recovering. Food inflation is modest at 3.3% y/y in May, largely in line with expectations.”
“Other components of the CPI that were affected by weaker demand in 1H 11, including clothing and footwear, recreation and culture, restaurants, furnishing and household equipment have all shown a rise in prices this year as demand has started to recover.”
“Consequently, we retain our 2012 inflation forecast of 2.5%. We have revised up our 2012 growth forecasts for four of the six GCC countries largely on the back of higher than expected oil production in 1H 12. We now expect GCC growth to average 5.0% this year, up from 3.9% previously. Higher oil output will also positively impact regional budget and current account surpluses this year. We have revised down our 2012 inflation forecasts for five of the six GCC states, and we now forecast inflation to average 3.0% across the GCC this year, down from 3.5% at the start of the year.”
“Our 2012 UAE growth forecast has been revised up to 3.0% from 2.5% previously. We have raised our hydrocarbon growth forecast on higher oil production, but left our non-oil growth estimate unchanged. We now expect inflation to average 0.9% this year, down from our previous forecast of 1.3%. In Dubai, the real estate sector continued to recover in Q2 but data suggests trade growth may have slowed in Q1 2012.”
“We have revised our forecast for Saudi Arabia’s real growth to 5.8% in 2012, from 3.8% previously. The Kingdom has maintained high oil production levels even in the face of lower oil prices in Q2. Non-oil growth is supported by government spending and private sector credit growth.”
“Qatar’s 2012 growth forecast has been revised down to 6.6% from 7.1% previously, on the back of lower official estimates for growth and a decline in oil production in 1H 12. The 2012/13 budget is almost 30% bigger than last year, but we still project a substantial 11.5% of GDP budget surplus,” it said.
“In Kuwait, political developments could stall economic reform and budget execution. However, oil production in 1H 12 was 9.1% higher than average 2011 output, and we have thus revised up our 2012 growth forecast to 5.2% from 3.6% previously.
It has revised up our 2012 growth forecast for Oman to 5.2% from 4.5% on higher oil output and strong non-oil growth projections.”