GCC economic growth to hover around 2%: S&P

Muscat: Aggregate gross domestic product (GDP) growth of GCC states is estimated at 2 per cent for 2016 and 2017, similar to growth levels in 2015, according to global rating agency Standard & Poor’s (S&P).
“We assume Brent crude will average $45 per barrel in 2017, $50 in 2018, and $55 for 2019 and beyond,” S&P Global Ratings added.
Meanwhile, S&P Global Ratings also said that it considers the structural shift in the energy markets now well and truly established, and GCC governments on a path to addressing the fiscal deficits through various forms of expenditure reform.
“This will have both direct (example, higher taxation and subsidy reform) and indirect (weaker economic growth and demand for goods and services) implications for practically all our issuers in the region," said S&P Global Ratings credit analyst Karim Nassif.
“In 2016, we already downgraded eight corporate and infrastructure government related entities (GREs) on the back of sovereign rating actions, and took negative rating actions on five companies that are directly exposed to the hydrocarbon industry.”
Corporate and infrastructure companies most able to operate successfully and deal with the implications of the reform agenda (higher taxes, lower subsidies) will be best able to wade out the transformational market changes that are occurring.
“In our view, these are likely to be the large GREs with important mandates in the oil and gas, utilities, and telecom sectors, for instance, as well as private corporate and infrastructure companies that are leaders in their respective fields, have adopted conservative funding strategies, and are not dependent on subsidies and government hand-outs for their operations.”
Sectors that have been hit the hardest so far include the private sector oil and gas and construction industries, that are faced by lower investment, project delays and retendering, margin pressure and delays in customer payments.
The fact that about two-thirds of S&P rated corporate and infrastructure ratings are GREs explains the dominance of stable rating outlooks despite the economic headwinds.