GCC countries’ GDP growth will more than double next year, as rising oil revenues after the crude price spike will lead to increased budget spending and propel the diversification of regional economies, economists say.
The UAE will lead the region’s uneven economic recovery, with its proactive approach to attracting global talent.
Maya Senussi, senior economist at Oxford Economics, said the outlook for the GCC region has improved in recent months, with economies benefiting from the national and global reopening.
“We expect this positive momentum to continue into 2022 as countries increase their oil production. However, the bloc will continue to lag behind other emerging market regions in returning to pre-pandemic activity levels, which will not be reached until the first quarter of 2022. Our forecasts show that regional growth is growing. ‘accelerates from 2.2% this year to 5.1% in 2022, the fastest pace in a decade, ”Senussi said.
In July, the Opec + group agreed to increase its production by 400,000 barrels per day per month until next year, gradually canceling cuts from 2020. It also decided to adjust production levels of benchmark for many countries including Kuwait, Saudi Arabia and United Arab Emirates, May 2022.
“Although we expect a slower rate of monthly increase than expected next year, we have pushed our oil growth forecast for the region to 6.7% for 2022, down from 3.8% three months ago. “said Oxford Economics.
Oil prices have nearly doubled in the past year, with Brent rising from $ 39.27 per gram on October 2, 2020 to $ 78.2 on October 1, 2021.
“The oil sector is expected to remain an important engine of growth beyond next year as producers increase their capacities. Higher oil revenues will allow several governments to close budget gaps and build up financial resources while providing an opportunity to advance growth and diversification programs. Although we expect spending growth to be modest in 2022, it will support non-oil activity, which we expect to accelerate to 3.9%, from an estimated 3.1% in 2021, ”he said. declared.
UAE to lead uneven GCC recovery
Senussi predicted that the recovery would remain uneven across countries given divergent growth strategies.
“The UAE’s proactive approach to attracting global investment and talent, along with greater fiscal space, means it will outperform its regional peers. Meanwhile, Kuwait and Oman, where workforce nationalization policies drive out talent, face the prospect of a longer and more protracted recovery, ”he added.
Simon Ballard, Chief Economist at First Abu Dhabi Bank (FAB), the GCC region in 2021 is following global reflation, but a myriad of challenges remain. “The road to recovery is anything but easy. “
Ballard predicts that the UAE’s economy will grow 2.4% in 2021, a rebound from the 6.1% contraction last year. While Saudi Arabia is also expected to grow at a similar rate this year.
No immediate funding problem
Senussi noted that the rise in the price of oil this year eased immediate financing problems and, given its dependence on commodities, external borrowing needs have declined.
“However, fiscal vulnerabilities remain high in Bahrain and Kuwait in particular, two of the three countries with large double-digit budget deficits in 2020. The third being Oman, which is implementing a medium-term fiscal plan.”
The short-term outlook for the GCC is brighter, but headwinds persist.
“The pegging of the US dollar means the region will have to follow the Federal Reserve’s timetable in raising rates, even if inflation remains low. This could weigh on the resumption of credit growth, partially offsetting the benefits of a more accommodative fiscal policy, ”he said.