GCC economies to see moderate growth in 2020 as austerity slows, Arqaam Capital says

The biggest spending increase next year will come from Abu Dhabi through Dh50bn Ghadan 21 economic stimulus package

Abu Dhabi is leading spending in the GCC through its Dh50bn economic stimulus package. Victor Besa / The National

As oil prices appear more stable, fiscal austerity is slowing down in the GCC and hydrocarbon-rich economies are gradually increasing spending which will support moderate growth next year, according to Arqaam Capital.

Gulf economies will grow
an average 2 per cent, while Egypt, North Africa's largest economy, will expand at approximately 6 per cent, the Dubai investment bank said in a research note.

Regional governments, except Bahrain and Oman, "continue to have capacity to stimulate their economies" and in most countries, authorities have already "largely addressed their fiscal positions", said Jaap Meijer, head of equity research at Arqaam. There is "limited downside risk to oil prices on deeper supply cuts [agreed by Opec+]", he added.

Monetary easing has supported the GCC and Egypt while external factors such as the US-China phase-one trade deal, although lacking in details, will be positive for trade and logistic hubs such as Dubai.

The biggest spending increase will come from Abu Dhabi through its Dh50 billion stimulus package, Ghadan 21.

In Dubai, Arqaam expects “restraint after a few years of Expo-related spending”.

Meanwhile, Saudi Arabia, the biggest Arab economy, has projected a 3 per cent contraction in budgeted spending for 2020, though “we expect more spending to come off-budget through the PIF [Public Investment Fund], particularly from the proceeds of the Aramco IPO”, Mr Meijer said.

Dubai’s Expo 2020 should result in a short-term boost to the economy, generating about $9bn (Dh33bn) of incremental tourist spending, equivalent to 2 per cent of the UAE’s gross domestic product and about 7.5 per cent of Dubai’s economy, according to Arqaam.

“We could see up to an 88 per cent increase in tourist visits. We do not expect [the Expo 2020 site] to become a white elephant following the event, with the buildings to be transformed into a new residential and business district,” Mr Meijer said.

In terms of regional equity markets, Arqaam continues to see geopolitical risk subsiding in 2020. Collective Gulf markets underperformed the wider emerging, frontier and developing markets over the past year, given disparate growth across different markets, with index flows continuing to drive trade.

“We expect performance to continue to be driven by index flows going into 2020, with the Kuwaiti market the best positioned ahead of the expected MSCI EM upgrade in May,” according to Arqaam.

"We see room to play the gradual FOL [foreign ownership limits] opening up in the UAE, as well as the fifth phase of Saudi Arabia's FTSE inclusion that should bring in another $1.5bn of passive inflows."

The oil market outlook also remains stable in 2020, thanks to an extension and deepening of the Opec+ supply cuts, while US shale oil production is set to slow next year and flatten in 2021 on lower investments and depletion at the best drilling locations, Arqaam said.

"We expect oil prices to remain at about $60 to $65 per barrel versus $63 per barrel this year … which should more or less balance fiscal and external accounts for the GCC,"Mr Meijer said.