According to National Bank of Kuwait, GCC economies are expected to slip into a recession in 2009 as a result of the severe deterioration in the global economic scene.

The report said that "GCC: Fiscal stimulus and reforms are optimal choice under current circumstances," however, that it was fortunately that GCC economies were well positioned to face the storm.

It said that "The dominance of their public sectors in economic activity should provide a measure of stability, including on the employment front. More importantly, all GCC countries have the capacity to pursue expansionary fiscal policies without putting pressure on their financial positions, thanks to the large surpluses of previous years."

The report added that the rationale for using fiscal stimulus is to have higher government spending offset the decline in private consumption and investment. The latter have been negatively impacted by the bursting of the equity and real estate market bubbles, resulting in massive wealth destruction. In current circumstances, monetary measures alone are likely to prove inadequate to stimulate private demand."

It said that most GCC governments had announced a range of fiscal stimulus measures to deal with mounting economic challenges. The size of the stimulus ranges between 3.0% in Bahrain and 9.0% in Saudi Arabia as a percent of 2008 non oil GDP.

According to the NBK report, even if oil prices remain near their current levels, more than USD 600 billion in accumulated budget surpluses since 2003 provides a war chest of more than two years' worth of spending. No doubt this leaves GCC governments in a very comfortable position. To lift spending further this year, especially on capital is spending in light of the positive impact on the rest of the economy, mainly private sector activity and household spending.

(Sourced from Kuwait News Agency)