Government Spending Bodes Well For Growth

The increase in government spending announced as a response to unrest at the start of 2011 will boost household consumption as well as fixed investment this year, leading us to revise up our real GDP growth forecast to 4.7% from 4.2% previously. The magnitude of this boost will be undermined by a slowdown in non-oil export growth, with the tourism sector getting hit by the deterioration of the country's security profile. We stress that Oman remains primarily an oil economy, thus a drop in oil prices would cut into the country's fiscal resources, posing downside risks to our GDP growth forecasts.

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