Predicting an overall
economic growth of eight per cent for the region in 2008 compared to
5.2 per cent in 2007, the Washington-based lobby for the world's major
banks and investment institutions, said the bulk of the foreign assets
would be controlled by central banks and other government agencies.
"The six Gulf Arab states are expected to sustain an economic boom on
the back of robust oil prices, but the weak US dollar could pose
inflationary and exchange rate pressures on the region," an IIF
forecast said.
Noting that Gulf-based funds have played a
lead role in recapitalising major European and US banks that have lost
billions of dollars on investments linked to the US housing market
crash, IIF said GCC
would play an increased role in international financial markets.
"With oil prices likely to remain at robust levels, the GCC
governments are set to sustain recent growth in capital spending and
foreign investment," said IIF Managing Director Charles Dallara.
"High oil prices are enabling the GCC
governments to place a growing volume of resources into reserve and
wealth management funds, which will play increased roles in
international financial markets," he said.
As the
region's economic boom is likely to be sustained into the medium term,
George Abed, the IIF's director for Africa and the Middle East,
cautioned about an imminent slowdown in the United States. As growth in
industrialised countries slows, Abed said the GCC
region would not be affected mainly because of high demand for oil. The
region would not be dented by credit and financial turmoil that sprang
from US housing troubles.
However, IIF said a US slowdown could affect other regions and could lead to a softening oil prices in the first half of 2008.
"In this case, oil revenues could pull back from recent peaks."
The IIF director pointed out that the impact of a possible slowdown
could be mitigated by the significant number of major infrastructure
projects already under way or being pursued throughout the Gulf region.
"These will provide momentum for robust oil and gas production, as well
as the development of other sectors, notably real estate, trade and
finance, and tourism, for several years to come," he said.
The IIF found few signs GCC
countries were diversifying significantly away from dollar assets amid the US currency's decline. Past booms in the region saw GCC
countries investing heavily in sovereign bonds, mostly in the United States.
"There has definitely been a trend away from sovereign fixed income
securities in the direction of a larger share in equities and now more
recently investments similar to those made by private equity funds,"
Abed said. Whatever diversification away from dollar assets there has
been has not been significant, he added.
"I have no doubt the future
will be marked by further diversification in those directions but these
are fairly conservative central banks as well as national asset
management authorities and they are not likely to make any sharp
breaks," he said.
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