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Low oil price presents challenge, chance for Gulf Arab states: economist

Xinhua, February 3, 2015 Adjust font size:

Low oil price presents both chances and challenges for Gulf Arab nations to introduce structural reforms to build mature and diversified economies, state news agency WAM quoted an economist as saying on Monday.

Dr. Marie Owens Thomsen, chief economist of the Dubai branch of French bank Credit Agricole, said the "dramatic drop" in oil prices is "a game changer," with respect to the macro-economic and market scenarios in 2015 and the medium term.

Oil prices (Brent) lost 50 percent in value from June last year to January, hitting a near six-year low below 47 U.S. dollars a barrel before bouncing back 16 percent until the beginning of the year.

The year 2015 will be characterized by a situation of deflationary expansion where inflation prices fall and gross domestic product expands simultaneously, she said.

The economist believed that this will lead to higher growth and lower inflation and lower prices in oil importing countries but pose unique challenges to oil exporting regions.

Meanwhile, low oil prices represent "a great opportunity for the Gulf Arab nations to implement deep structural reforms to decrease reliance on hydrocarbon revenues, and take their economies to the next level of their growth trajectory," she said.

The "transflation" scenario is expected to be rather short lived, but 2015 will be the year that marks the unique constellation of stronger growth, lower inflation, and low interest rates, a favorable environment for all risk-asset classes, she added.

As a result of the low price scenario, it is crucial to note that mature countries are no longer in recession and demand could undoubtedly be stronger, she said, adding that "risks to the downside are still manifold."

However, She also said that the supply side emerges as the main cause for the oil prices drop, rather than weak demand.

Earlier last week, Tim Fox, chief economist at Dubai's biggest bank Emirates NBD said analysts' consensus for oil prices (Brent) in 2015 was at 65 dollars per barrel. Endit