GCC to see only small impact from US, Europe debt woes

The current economic turmoil in the US and Europe may have a short term impact on the GCC but the longer term effect will be limited because the economic fundamentals in the region remain strong, QNB Capital said on Monday. Recent weeks have seen the most dramatic developments in the global economy and markets since the credit crunch three years ago.A key event was the first ever downgrade of US government debt by credit rating agency Standard & Poor's, on August 5. QNB Capital said in a statement that market volatility was likely to continue for some weeks as investors reassess risk, with GCC markets continuing to be influenced by moves in global markets.While oil prices have dropped to their lowest level in 2011, QNB Capital said it did not expect there to be a sustained decline in oil."Moreover, GCC governments use conservative oil prices in their budget assumptions and, before the current turmoil struck, were on course to post large fiscal surpluses this year," the company said. "The GCC countries' fiscal surpluses and low levels of public debt mean that, even if oil prices were to decline, this would not seriously disrupt their spending plans. This is important, because government spending is the foundation of the region's non-oil economy," it added. Separately, a weaker dollar, to which GCC currencies are pegged, could increase the cost of imports and boost inflation in the region, QNB Capital said, adding that it did not expect the impact from a weaker dollar to be significant."The GCC is intimately connected to the US, Europe and Asia, and economic and market turbulence there will continue to reverberate in the Gulf. However, it is better placed than most other regions to navigate safely through a turbulent global economy," the statement said. From / Arabian Business News