Despite a marked decline in oil revenues, most oil exporters are maintaining government spending with the help of reserves accumulated during the boom years. Between 2004 and 2008, with high oil prices and global investor interest in the region, the Middle East’s oil-exporting countries grew by about 6 percent a year, accumulated $1.3 trillion in foreign assets, and launched huge investment projects to expand capacity and improve infrastructure. These accumulated reserves now provide a basis for continued high public spending to sustain demand during the current downturn.
Continued high spending on the part of oil exporters is cushioning their own economies, providing positive spillovers to the region’s oil importers, and contributing to global demand. However, lower oil prices and high spending will shift oil exporters’ external current account position from a massive surplus of $400 billion last year into a collective deficit of nearly $10 billion in 2009 if oil prices stay at their current levels.
Overall, GDP growth of oil exporters is expected to decline sharply from 5.4 percent in 2008 to about 2.3 percent in 2009, driven mainly by cuts in oil production and in line with OPEC’s agreement. Oil GDP growth is projected to decline from 2.4 percent to minus 3.5 percent while non-oil GDP growth will likely slow from 6.1 percent to 3.7 percent. The combination of slower domestic growth and lower international food and commodity prices is expected to bring down inflation from 15.6 percent in 2008 to 10 percent in 2009.
In the financial sector, exposure to slumping property and stock markets and tightening external liquidity conditions has posed challenges in some countries, but the authorities have acted swiftly to ease domestic liquidity conditions and supported their banking systems. Given the still evolving nature of the global crisis, actions to ensure the health of the financial system will remain a priority in the coming year
