The slump in oil prices has caused the Gulf’s equity markets to tumble, but the region’s governments still seem to be unfazed. Oman aside, no country has announced cuts in public spending. And Saudi Arabia’s Oil Minister has once again shrugged off calls to reduce oil output to shore up prices. At current oil prices, all the Gulf economies are likely to post budget deficits and the region’s current account surplus will be wiped out next year. However, large FX reserves mean that, over the next few years at least, policy won’t need to be tightened aggressively. Accordingly, while we expect growth to soften in 2015- 16, we don’t think it will collapse.
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