GCC economies set to grow 2.1% this year on higher oil prices and government spending

Preparation for regional events and spending by Saudi Arabia's Public Investment Fund will drive growth, new report says

GCC growth is expected to rebound to 2.1 per cent this year as oil prices rise, Covid-19 movement restrictions are eased and regional governments step up spending in preparation for major events, according to a new report.

The latest projection is 0.5 per cent higher than the forecast provided three months ago, the ICAEW Economic Update: Middle East report, commissioned by the Institute of Chartered Accountants in England and Wales and compiled by Oxford Economics, said.

The rise in the oil price has boosted revenue prospects for GCC producers, which derive 40 per cent to 90 per cent of total fiscal income from oil

Preparation for various regional events such as Expo 2020 Dubai and the 2022 Fifa World Cup in Qatar, and spending by Saudi Arabia’s Public Investment Fund will support growth, it said.

The region’s economies are also in a good position to capitalise on the travel demand when the rest of the world opens up, according to the report.

“The rise in the oil price has boosted revenue prospects for GCC producers, which derive 40 per cent to 90 per cent of total fiscal income from oil,” said Scott Livermore, ICAEW economic adviser and chief economist at Oxford Economics.

“Higher oil revenue gives governments more scope to support post-pandemic recoveries without undermining efforts aimed at improving medium-term fiscal sustainability.”

The non-oil economies of the six-member GCC are set to increase by an average of 3.1 per cent this year after contracting by 4.1 per cent last year, a separate report by the Institute of International Finance said in March.

Meanwhile, the Middle East’s gross domestic product will grow by 2.4 per cent this year, a similar rate to the region’s average growth trajectory in the last decade, the report said.

“The outlook for most Middle Eastern economies looks positive this quarter but keeping coronavirus levels low will be essential to ensure economies can return to growth,” said Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia.

“Governments across the region must keep developing sectors and industries that foster innovation and continue implementing reforms to diversify economies and accelerate them into the post-Covid era.”

The rise in oil prices, after an Opec+ deal to limit supply, is also expected to help economies in the Middle East as they recover from the pandemic.

With the Covid-19 pandemic under control in China, Europe and the US and the summer tourism season approaching, crude demand is increasing, the report said. Oil prices rose for the third consecutive week, with Brent trading at $72.96 while West Texas Intermediate, which tracks US crude grades, traded at $70.91 as the International Energy Agency flagged rising demand for crude.

However, given the “continuously fragile demand outlook and plentiful scope for stronger supply growth, the upside for oil prices will remain limited through 2022 and 2023” and Brent crude is forecast to average $61 a barrel during that period, the ICAEW report said.

In Lebanon, “government formation remains deadlocked and the population is struggling to cope with soaring inflation, fuel shortages and progressively longer power cuts”.

The report predicted that the country’s GDP will shrink by 5.3 per cent this year, after last year's 25 per cent contraction.

In Iraq, short-term growth prospects remain subdued. However, an upturn in oil production is expected to provide some fiscal relief, the report said.