2013-01-15 13:55:17 - Oman and Yemen Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com
Government spending will be the primary driver of Oman´s growth momentum over the medium term. With oil prices set to remain high throughout the year, and room in the government´s budget for a further ramping up of social spending, we expect the economy to continue growing robustly in the near term.
We expect inflation to remain broadly under control through 2013, with the continued presence of large-scale government subsidies helping to limit price fluctuations. We project average inflation of 3.0% in 2013.
Major Forecast Changes
We have revised down our outlook for Oman´s 2012 budget surplus slightly, from 9.5% to 7.7% of GDP. With hydrocarbons revenues likely to have reached their peak, and expenditure set to rise in view of the draft 2013
budget´s expansionary fiscal outlook, we see the surplus narrowing to 4.0% of GDP in 2013.
Key Risk To Outlook
We stress that, for the foreseeable future, Oman´s economy will remain highly reliant on oil revenue. Should prices record a more pronounced drop before the economy has been sufficiently diversified away from the energy sector, our positive outlook might prove overly optimistic.
The autocratic nature of the political regime in Oman (and elsewhere in the Gulf) will ensure that risks of an uptick in protest activity by pro-democracy demonstrators remain elevated; such activity would generate uncertainty and deter investors from the market.
Yemen´s political crisis remains in full swing. Despite an upcoming national reconciliation conference, we remain highly pessimistic about the prospects for political stability heading into 2013.
The economic outlook is also bleak, and our core scenario sees business activity continuing to be negatively impacted by civil unrest.
Persistent attacks on the country´s hydrocarbons infrastructure will weigh on exports, while patterns of consumption and investment will be disrupted by widespread violence.
Over the long term, we expect Yemen to become a significantly more decentralised state, which will provide different tribal groups with a greater say over policy. Hydrocarbon-revenue sharing will most likely be a central feature in any future state.
Key Risk To Outlook
Any further disruption by southern-based Islamists to oil or gas exports would weigh heavily on the external position. Yemen´s current account dynamics remain highly precarious; and, with minimal inflows of capital on the financial account, another series of attacks on the country´s hydrocarbons infrastructure would most likely see the rial come under sustained depreciatory pressure.
We expect the international community to significantly step up its financial support for Yemen in the years ahead. Large inflows of aid would leave the government in a better position to protect the country´s all-important oil export infrastructure. In addition, there would be room for a ramping-up of public spending on wages and infrastructure, helping to facilitate a more rapid economic recovery.
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