Top real estate investors flock to Riyadh forum to discuss the future of the sector

RIYADH: Central banks are currently struggling to avoid raising interest rates amid higher inflation in Western countries.

But according to Erik Lundback, senior economist at the International Monetary Fund, the Gulf Cooperation Council countries have managed to maintain the same interest rate levels.

Lundback made the remarks during a virtual conference recently organized by the Arab Gulf States Institute in Washington.

“The rise in the cost of living in the GCC is similar to what we see in other emerging markets, but at a much slower pace,” said Alia Moubayed, chief MENA and Pakistan economist at Jefferies, a bank. London-based investment firm, Arab News.

Inflation in Bahrain, for example, is the lowest among GCC states at nearly zero percent, followed by Saudi Arabia and the United Arab Emirates where price increases averaged 1.2 percent. and 2.3 percent annually, respectively over the past 3 months, according to Jefferies.

But this is not the case among other GCC states. Inflation in Qatar reached 5.5%, followed by 4.3% in Kuwait in December 2021 and 3.5% in Oman at the end of November last year.

“Higher inflation in the GCC will negatively impact consumption, a key driver of gross domestic product growth in most countries,” Moubayed said.

She noted that a higher cost of transport would trigger a second round of inflationary effects and could push towards more general increases in the price level, through consumption baskets.

“Higher general price inflation could push countries to slow down their plans to phase out untargeted subsidies and restructure spending,” Moubayed noted, adding that this could prompt governments to increase spending to support households. the poorest.

She did not rule out the possibility of house prices rising significantly due to supply and demand imbalances in most GCC markets. In Saudi Arabia, the wholesale price index registered an annual increase of 12.5% ​​in the fourth quarter of last year, according to the Kingdom’s central bank, also known as SAMA.

Its consumer price index rose 1.2% in January from a year earlier, led by transport, which recorded the largest year-on-year increase of 6.4%.

Education costs also increased by 4.8%, while prices for recreation and culture increased by 2.1%.

However, housing, water, electricity, gas and other fuels saw the largest year-on-year decline of 1.8% in the last quarter of 2021, according to Saudi Arabia’s central bank.

In the United Arab Emirates, consumer prices edged up 0.02% month-on-month in December, according to Focus Economics. Inflation stood at 2.5% in December, with the economic body’s expert panel expecting prices to grow by around 1.9% in 2022.

“The main drivers of inflation in the GCC over the past few months have been food and transport price increases,” Moubayed said.

This was the case in Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates as global commodity prices rose. Countries where fuel prices are already liberalized or where the phasing out of fuel subsidies continues have seen soaring transport costs, including the United Arab Emirates, Oman, Saudi Arabia and Qatar, she said.

Monica Malik, chief economist at Abu Dhabi Commercial Bank, who also spoke at the event, added that inflationary pressures are building in the region.

Malik said: “Since we import goods, we are affected.”

She noted that rising global inflation and high energy prices are impacting the region, mainly through rising food, fuel and transport prices.

However, Saudi Arabia and Qatar have nonetheless introduced price caps in specific categories.

Despite these challenges, inflation in the GCC remains on average lower than that of the United States and Europe. Moubayed said: “The average GCC inflation stands at around 2.8% year-over-year at the end of 2021. This compares to an annual rate of 7.5% in the United States. recorded in January and at 5.1% in the European Union.”

But Lundback warns that despite regional sovereign wealth funds and reserves acting as a buffer against global pressures, GCC countries still need to expand the revenues they generate from a wider range of industries in the long run.

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