Economy: How will the Euro Zone crisis affect the Gulf - can the gulf avoid a Greek tragedy?

The debt crisis in the Eurozone, centered on Greece’s inability to service its liabilities of around $500 billion, is moving at a rapid pace which –given its potential impact on the global economy is no surprise and no bad thing. France and Germany closed a deal that saw the Eurozones rescue fund, the European Financial Stability Facility (EFSF), boosted to more than $2.5 Trillion, the banking system recapitalized and further hair cuts by the Greek bondholders.
So what does this mean for the nations in the Arabian Gulf? After the financial meltdown of 2008/9, which is still fresh in the minds of most Dubai property owners, who saw the value of their homes more than halve in barely a year? The UAE and Kuwait both witnessed negative Gross Domestic Product (GDP) growth in 2009 of 1.4% and 2.2% respectively, while the worlds largest oil producer, Saudi Arabia, almost flat-lined as its economy grew at 0.6 percent, according to the BofA Merrill Lynch Global Research.
Most regional financial experts don’t believe that a Greek default on its debt would have any immediate effect on the Gulf region. This is because they don’t believe that the Gulf region has any significant exposure to the any potential Greek default. However, if the Greek debt crisis were to impact the Gulf region, it would be through an increase in risk aversion by international investors and a potential reduction in lending to the region by international banks.
In 2008, Saudi Arabia enjoyed foreign direct investment of $39.4 billion but in 2012 the figure is projected to be barely a quarter of this at $10 billion, according to HSBC Global Research in its Middle East Economics Quarterly. Hydrocarbon sales are an intrinsic source of revenue for the Gulf states and the possibility of a global recession which usually results in the drop in demand for oil and thus, its price, is another major worry for the Gulf region. In January 2008, the oil price exceeded $145 a barrel but by February 2009 it was about $35 a barrel. A number of Gulf nations such as Qatar, Saudi Arabia are trying to establish strategic plans to diversify their economies. There is nothing inevitable about the world falling into a global recession. It is far more likely that we are in for a period of low growth in the major global economies.
In the event of a recession, oil prices will fall, but the impact on the government spending depends on how far they fall and how long they stay low. It is important that governments keep on track with their commitments and not cut back on projects. Governments should increase projects in the face of global downturns especially as the region faces off to a global slowdown, the government should step in to help the economy be increasing spending .if the world falls into negative growth, the eyes of the world will turn to Dubai which at the moment carries a staggering debt burden of over $100 billion. However, Dubai is in a better position to absorb economic downturns.
The country that will suffer the most from an economic recession is inevitably going to be Bahrain. Bahrain is one of the main hotspots for political unrest in the Arab Spring and has seen its hospitality sector decline 17 per cent in the first six months of the year and its GDP growth was 0.8 percent in Q2 2011, according to HSBC Global Research. Bahrain’s full year growth is forecasted to be less than a third of the 4.5 percent it managed in 2010. The Gulf States are expected to continue their ties with China and India and maybe accelerate them as the crisis in the G7 countries takes hold. However, bear in mind that China and India face their own problem