World Bank lowers growth forecast for Arabian Gulf on oil cut adherence

Growth in Mena region will slow to 2.1% in 2017 before recovering in 2018 to 3% and 3.4% in 2019

A placard announcing the 2017 Annual Meetings adorn the World Bank Headquarters in Washington, DC, on October 9, 2017. / AFP PHOTO / JIM WATSON
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Washington, D.C.; -- The World Bank lowered its growth forecast for the Arabian Gulf region this year and in 2018 as the adherence of the area’s Opec members to a global oil output cut takes its toll on the economies.

Growth this year will slow to 0.7 per cent, compared with a 1.3 forecast in June, the World Bank said in a report. Next year growth will pick-up and reach 1.9 per cent, but still lower than the bank's June forecast of 2.3 per cent.

“The pickup in economic activity in the Middle East and North Africa (MENA) region that started in mid-2016 is expected to moderate in 2017 due to slower growth in MENA’s oil exporters,” said the bank. “Oil production cuts will weigh down growth in almost all countries in the subgroup.”

Gulf Opec members - Kuwait, Qatar, UAE and Saudi Arabia - are complying to an global oil output deal that trimmed 1.8 million barrels of per day (bpd) from the market to prop up prices. The six-month deal, which included a group of non-Opec countries led by Russia, ended in June and was extended until the end of March next year. Last week, Russian president Vladimir Putin said he is open to an extension of the agreement with Opec to the end of 2018.

“The overall growth in GCC countries for 2019 is projected at 2.7 per cent, below the levels seen prior to the 2014 oil price shock,” the bank said. “The average growth rate prior to 2011 for the GCC countries was around 4.5 per cent.”

The UAE’s economy will expand 1.4 per cent this year, down from 2 per cent in the June forecast. Oil GDP will contract by 2.9 per cent this year, while non-oil GDP will grow by 3.3 per cent thanks to higher public investment and a pick up in global trade.

But in the medium term, the outlook is brighter with projected growth forecast of more than 3 per cent.

“Non- oil growth is projected to rebound  as the expected improvement in oil prices and its positive effects on confidence and financial conditions dampen the effects of fiscal consolidation and as megaproject implementation ramps up ahead of Dubai’s hosting of Expo 2020 -- (which is) expected to draw in many  visitors, boosting private consumption and services exports. “

The country that will be hit most by the Opec cuts is Kuwait, which relies on oil for nearly half of its GDP. It is the only Gulf country forecast to contract this year by 1 per cent. Nearly 90 per cent of the country’s government income comes from oil revenues.

Saudi Arabia, Opec’s biggest oil producer which fell into recession in the first half of this year, will grow 0.3 per cent, down from 0.6 per cent from the June forecast, the bank said.

Qatar, which has faced an economic boycott since June 5 led by Saudi Arabia, the UAE, Bahrain and Egypt because of its backing of extremist groups and meddling in the internal affairs of neighbouring countries, will see its growth slow to 2 per cent this year from 3.2 per cent in the June forecast. The country has had to pump US$40 billion into its economy in the wake of the political fallout to prop it up.

Overall in the MENA region, growth this year will slow to 2.1 per cent from 4.9 per cent last year. But it will recover, with projections it will reach 3 per cent next year and 3.4 per cent in 2019, the bank said.

“Both Mena’s oil exporters and oil importers will benefit from a steady improvement in the global growth; increased trade with Europe and Asia; more stabilised commodity markets, especially oil; and reforms undertaken in some of the countries in the region,” the bank said. “Nevertheless, MENA’s overall growth levels are half of what they were before the 2011 Arab Spring, making it difficult to address the youth unemployment problem and the needs of massive numbers of people who are displaced across the region as conflicts continue.”

The region’s youth unemployment of 30 per cent is the highest rate in the developing world, and the figure is higher for females at around 50 per cent in some MENA countries.