DUBAI: The plunge in oil prices since last year is expected to produce fiscal deficits in the six GCC countries.
The median forecast of 15 economists for Saudi Arabia’s gross domestic product growth this year is three per cent in the latest poll.
Analysts have raised their forecasts for this year’s growth in the two biggest Gulf Arab economies but cut predictions for next year because of the outlook for oil output, according to a Reuters poll published on Thursday.
Oil-producing countries in the six-member Gulf Cooperation Council have partly offset weakness in oil prices by increasing output volumes faster than expected in 2015, said Khatija Haque, head of regional research at Emirates NBD, Dubai’s top bank.
“That suggests oil output could be flat or even slightly lower next year,” she said, because producers have less room to increase exports in the short term, and that may weigh on growth in 2016.
The median forecast of 15 economists for Saudi Arabia’s gross domestic product growth this year is three per cent in the latest poll, up from 2.6 per cent in the previous poll, which was conducted in April.
But the forecast for Saudi growth next year has been cut to 2.6 per cent from 3.0 per cent. Emirates NBD forecast early this year that Saudi GDP would expand 2.5 per cent in 2015 and three per cent in 2016; Haque said there were now upside risks for the bank’s 2015 prediction and the 2016 figure might be lowered. The latest survey forecasts growth in the UAE of 3.8 per cent this year, up from the previous survey’s 3.4 per cent, and 3.5 per cent next year, down from 3.7 per cent.
In addition to oil output, growth in Gulf economies next year will depend on whether governments take the politically sensitive decision to restrain spending to relieve pressure on state finances.
The plunge of oil prices since last year is expected to produce fiscal deficits in all six GCC countries, according to the poll – even in ultra-rich Qatar, where analysts expect a deficit worth 0.7 per cent of GDP this year and next. So far, GCC governments have mainly covered deficits by drawing on fiscal reserves. But economists expect them to cut spending and reform subsidies as they prepare for an era of cheap oil that might last years. For that reason, the deficits of most of the countries are expected to shrink next year, the poll found.
Saudi Arabia’s fiscal deficit is projected to shrink from 17.6 per cent of GDP this year to 12.4 per cent next year and 11.7 per cent in 2017.
But Haque noted that Riyadh looked unlikely to cut defence spending and it was committed to long-term infrastructure projects. That suggests it would focus on containing public wage growth and cutting other government consumption to save money.
Saudi Arabia’s big fiscal reserves and low levels of debt mean it won’t be under pressure to cut spending sharply, so any retrenchment will be gradual and measured, she said.
