[Oman-L] GDP growth rate and inflation in Oman (Oman Daily Observer, 20 July 2008)

[Joachim Duester]

Oman GDP posts highest growth in 28 years    
Source: Oman Daily Observer, 20 July 2008


Oman's economy achieved nominal GDP growth at current prices of a record 42.9 per cent in Q1 2008, the highest growth experienced in the Sultanate since 1980, the Ministry of National Economy said in latest bulletin for the first quarter of this year. Much of the growth was contributed by the petroleum sector, which itself posted a record growth of 60.8 per cent. 

This was the result of both a 4.9 per cent increase in production and a 60 per cent increase in prices in Q1 2008, the ministry said. Oman crude oil increased from an average of $ 54.70 per barrel in Q1 2007 to an average price of $ 87.4 in Q1 2008, a 60 per cent increase of $ 33 per barrel. In Q1 2008 alone, the price enjoyed its record highest gain in any single quarter, rising $ 14.3 per barrel. 

Oil production had been in decline since 2000 but Q4 2007 saw the first increase of 2.7 per cent over the previous quarter and again in Q1 2008 there was a 1.9 per cent increase over Q4 2007, bringing the year on year increase in Q1 2008 to 4.9 per cent. The increase came from condensate rather than crude oil. Oil export values saw strong growth in Q1 2008 with a 46.6 per cent increase in Q1 2008, thanks to the jump in oil prices and the increase in production in Q4 2007 and Q1 2008.

The non-oil sector also performed well with 28.3 per cent growth in the same period — the highest since Q3 1996 — driven by high growth rates in the wholesale and retail trade, manufacture of basic chemicals, transport, storage and communication and financial and intermediate sectors. The cost of borrowing for companies and households fell the most it had done this decade to reach a nominal interest rate of 6.3 per cent by the end of March 2008, and an average of 6.5 per cent for Q1 2008. 

The supply of funds for lending was at an all-time high in Q1 2008 with liquidity growth of 37.8 per cent compared to Q1 2007. “These credit market conditions meant it was never easier to borrow money. Indeed, the amount of money borrowed in Q1 2008 increased by 48.1 per cent compared to Q1 2007. This credit boom had the effect of strengthening the demand from companies and households, with net import growth remaining strong at 45.5 per cent in Q1 2008 compared to Q1 2007. In addition, high growth of 23.2 per cent in the private sector workforce fuelled the demand from the household sector,” the bulletin said.

At the same time, Q1 2008 saw record increases in prices. The Consumer Price Index increased in Q1 2008 to bring the average increase compared to Q1 2007 to 10.6 per cent. The Wholesale Price Index increased 12.9 per cent and the Building Materials Index 13.8 per cent in Q1 2008, up from 6 per cent and 8.1 per cent respectively in 2007 compared to 2006. 

However, the broadest indicator of the general price increase across the economy is the fact that the majority of the 42.9 per cent increase in GDP in Q1 2008 was due to price increases. Oil and gas revenues formed 86 per cent of government revenue in Q1 2008. Total government revenue was up 36.5 per cent to RO 2,116 million in Q1 2008 which enabled a 14.7 per cent increase in total public expenditure to RO 1,246 million during the quarter, leaving a healthy surplus of RO 869.8 million. The Omani rial continued to depreciate in Q1 2008 with the Index of Effective Exchange Rate reaching a new record low of 89.4 in March 2008 as the value of the US$ fell to record lows against the other major world currencies. The previous record low was in November 2007 when it dipped to 91.6.