Economic Review: Second Quarter 2007 Sultanate of Oman

    This report relays the main stories at work in the Sultanate’s economy during the second quarter of 2007 and the main macro economic linkages, making use of the periodic data published within the Ministry of National Economy and some other government organisations. The main stories are:

1. Nominal GDP during January to June 2007 posted an 8.3% year on year increase which saw a definite halt to the slowing down of GDP that had occurred throughout 2006 and Q1 2007 from the heights achieved in 2005. The turnaround was mainly the result of a strong increase in the price of Oman Crude from an average of US $54.70 per barrel in Q1 2007 to US $64.30 in Q2 2007.

2.  2. Non oil sector year on year growth continued to be strongly positive in January to June 2007 at 16.9%, although slightly lower than the 12 year high of 18.5% achieved in Q1 2007. This was driven by firm external demand, on the one hand, with the share of non oil exports to total exports peaking at 14. 7% in Q1 2007; and strong domestic demand, on the other hand.

3. 3. Whilst the strong growing demand side has been a driver of economic growth it has also contributed to continued inflationary pressure on prices. Increases in the Consumer Price Index of 4.8% in Q2 2007 were the highest year on year increases recorded. The main drivers of CPI increases were first, food products, in particular meat and poultry, fruit and cereal products; second rents in villas and flats and third, gold, jewelry and servants’ salaries.

4. 4. Q2 2007 broke the record established in Q1 2007 for the highest growth rate in any quarter for money supply (M2), the main indicator of liquidity in the economy, posting a massive 31.7% year on year increase compared with 28.2% in Q1 2007. This means there was a lot of liquidity in the economy.

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