The latest slump in oil prices is unlikely to lead to major balance sheet strains in the largest Gulf economies and, even if prices fall further to $40-50pb, dollar pegs shouldn’t come under threat. But in the long run, this will only be sustainable if policy is kept tight and domestic demand stays subdued. This is a key reason why we think that the recent economic recovery will falter in the coming quarters and that growth will ultimately be weaker than most expect.
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