Boston, MA -- (SBWire) -- 08/01/2013 --Oman's economic performance will remain robust over the coming quarters, on the back of healthy growth in oil and gas production and expanding non-hydrocarbon business activity. Rising public expenditure and a promising fixed investment picture should further support economic growth heading into 2014. We forecast real GDP growth of 4.4% this year and 3.8% in 2014, down slightly from an estimated 4.9% in 2012.
Oman's fiscal policy will remain strongly expansionary over the current fiscal year, with the government channelling public spending to stimulate the non-hydrocarbon economy and pursue economic diversification. However, we see spending growth slowing after 2013, owing to a more uncertain fiscal position. We forecast the budget surplus declining to 4.9% of GDP and 2.9% in 2013 and 2014 respectively, from 10.3% in 2012. We retain our view that Oman's fiscal surpluses are set to steadily wane over the medium term, turning into a modest deficit by 2017.
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We maintain our view that consumer price inflation (CPI) in Oman will remain under control over 2013. A recent decision by the government to increase the monthly minimum salary of Omani private sector workers provides a fresh source of inflationary pressure. However, we expect the impact on prices to be fairly restrained. We forecast CPI to average 3.4% y-o-y over the year, up slightly from 2.9% in 2012.
Key Risk To Outlook
We stress that, for the foreseeable future, Oman's economy will remain highly reliant on oil revenue. Should prices record a more pronounced drop before the economy has been sufficiently diversified away from the energy sector, our positive outlook might prove overly optimistic.
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