Growth returns to Middle Eastern economies this year after difficult 2017, report says

UAE to see 2.6 per cent GDP growth after seven-year low, says ICAEW and Oxford Economics

The economies of the Middle East are expected to see a recovery in GDP growth in 2018, following a challenging past year, with the UAE set to record 2.6 per cent growth, according to a report by Oxford Economics and the ICAEW. The NationalShow less

The economies in the Middle East are forecast to grow at an average of 2.4 per cent this year as they recover from a challenging 2017, helped by rising oil prices and easing fiscal consolidation measures, a new study has found.

An improvement in security conditions and steady progress of economic reforms will also help gross domestic product growth expansion after three-year oil price slump and fiscal tightening hampered growth across the region, consultancy Oxford Economics and the regional chapter of the Institute of Chartered Accountants in England and Wales (ICAEW), said in the second quarter Economic Insight Middle East report released on Tuesday.

The regional economies are picking up pace of expansion, recovering from a difficult 2017 where GDP growth dropped to around 1 per cent, the report said.

"The key phrase to describe our sentiment is "cautiously optimistic", Mohamed Bardastani, ICAEW economic adviser and senior economist for the Middle East at Oxford Economics, told The National in a telephone interview on Tuesday.

Higher oil prices, which have risen to above $80 per barrel this year, their highest since November 2014 and a substantial uplift since the end of 2017, when oil prices averaged around $54 to $55 per barrel, is among the main pillars supporting the regional growth, Mr Bardastani said.

“Rising oil revenues will provide further economic assistance to predominantly oil-dependent economies,” he said.

An increase in government spending will also drive GDP growth after sovereigns were forced to tighten purse strings to compensate for dwindling hydrocarbon revenues. Government spending is expected to rise by an average of 5 per cent in the Arabian Gulf in 2018, mainly in the form of export financing, support to small and medium-sized enterprises and housing and development, he said.

In the UAE, GDP growth is expected to accelerate to 2.6 per cent in 2018 after a seven-year low of 1.5 per cent in 2017, according to the economic outlook report.

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Increased public spending, coupled regional economic recovery and, more recently, the government’s announcement of a $13 billion (Dh47.75bn) stimulus package are among the factors that will drive growth in the UAE, the region's second biggest economy, Mr Bardastani said.

Despite the introduction of a 5 per cent VAT in January that will lift inflation to 4 per cent in 2018 weaker real estate market, UAE will still be one of the best performers in the Middle East in 2018, according to the report.

Lebanon and Iraq are each forecast to record GDP growth of 2.5 per cent, Kuwait and Jordan 2.4 per cent respectively, Bahrain 2.3 per cent and Saudi Arabia 1.8 per cent. Oman is projected to see the fastest growth of 3.6 per cent this year, although this is from a low of 0.2 per cent in 2017 and the sultanate continues to grapple with one of the highest debt to GDP ratios in the Gulf, after Bahrain, Mr Bardastani added.

Average GDP growth across the GCC is forecast to reach 2.3 per cent in 2018, up from 0.1 per cent in 2017, the report said.

The key risks to pick in economic activity this year would be complacency about the rising price of oil on the part of oil-exporting GCC countries, which could cause them to shelve much-needed reforms to diversify their economies. A sharp decline in oil prices – although this is unlikely because of the Opec agreement to limit production is another risk to the GDP expansion, said Mr Bardastani.

Rising US interest rates and increased trade tensions between China and the United States are more remote causes of potential risk, as they could impact overall global GDP growth, he said.