KUWAIT CITY: Economic growth in the GCC will strengthen from 2018 onwards, with the UAE and Qatar outperforming the rest of the region. according to new research. Analysts BMI Research said the factors that have weighed on expansion this year – hydrocarbon production cuts and lower-for-longer oil prices – will ease in 2018, boosting government revenues and improving consumer and investor confidence across the region.
It added that Qatar and the UAE will be the growth outperformers over the next five years. BMI said it expects economic growth to pick up in all Gulf Cooperation Council (GCC) member states over the medium term (2018-2021).
“We forecast an annual aggregate average of 2.8 percent real GDP expansion over the period – a recovery from the 1.5 percent we forecast in 2017,” it said in the research note.
It added that growth will underperform this year (from an average 2.5 percent in 2016) – owing to the OPEC, non-OPEC agreement to curb oil production, and lower oil prices than we initially anticipated.
The UAE and Qatar will outperform the region over the years ahead, as strong fiscal positions enable their governments to invest heavily into diversification and infrastructure development programmes. While Bahraini growth rates are likely to also remain robust, the country is exceptionally vulnerable to external shocks, given its wide budget deficits, high debt and reliance on Gulf funding, BMI noted.
Gradually rising global hydrocarbon prices will be a key driver of growth in the GCC over the years ahead, it added, as hydrocarbons account for over half of government revenue in all member states, and prices therefore have a major impact on public spending.
However, higher hydrocarbon prices will be insufficient to fully mitigate the effects of hydrocarbon production cuts for most Arab Gulf economies in 2017. The OPEC, non-OPEC agreement has been extended to March 2018, as its effect on the drawdown of global oil stockpiles has been slow to materialise, and this will lead to flat or declining oil production growth across the GCC in the near term.
BMI said this trend is taking its toll on Saudi Arabia, Kuwait and Oman, in particular, for which are forecast to see real GDP expansions slow to 0.0 percent, 0.3 percent and 1.2 percent respectively in 2017, from 1.7 percent, 1.9 percent and 3.1 percent in 2016.
“Over the medium term, however, we forecast economic growth to accelerate across the region, as hydrocarbon prices pick up further and curbs on oil production ease. While growth in hydrocarbon production will remain relatively slow throughout the next decade, higher prices will boost confidence and government investment into the development of non-hydrocarbon sectors in all GCC states,” BMI added.
