If oil prices stay low through next year, regional property developers and construction companies may suffer and overall economic activity will likely slow, according to Jassim al Mannai, director general of the Arab Monetary Fund. Over the past six months, the region has been hit by a credit shortage that has made it difficult for property developers and contractors to continue with large development projects. Lately, there have been calls for governments to provide the missing funds to keep major projects on track. However, if the price of oil stays near its current levels of about $40 (Dh146) a barrel for long, regional governments will start running fiscal deficits making it difficult for them to defend their economies from the effects of the credit crunch.
"The governments are the real financiers of most of the companies. A reduction in government income will impact the governments' ability to spend in the same way," Mr Mannai said on Wednesday during a conference on the global financial crisis and the UAE construction sector, hosted by the Abu Dhabi Chamber of Commerce. "Our economy will be affected due to the decrease in oil prices more than any other factor," he said. "I believe contractors will have to think seriously about adapting to the new situation. Companies will have to rationalize their expenditures," he said. "We should also think seriously about mergers."
"It is almost sure that 2009 will be a difficult year. The crisis will go on through the coming year," he said. tpantin@thenational.ae