Growth outlook lowered for GCC economies this year – poll

Expectations for growth in the GCC economies this year have been lowered, according to a quarterly Reuters poll of economists released on Wednesday, as oil output cuts, austerity measures and sluggish non-oil growth continue to weigh on them.

Gross domestic product in Saudi Arabia, the largest Arab economy and the world’s top oil exporter, will grow 1.8 per cent in 2019 and 2.2 per cent in 2020, the poll of 23 economists projected. Three months ago, the forecasts were for growth of 2.1 per cent in 2019 and 2.2 per cent in 2020.

The Saudi economy grew 2.21 per cent in 2018, buoyed by strong oil sector growth and recovering from a 0.74 per cent contraction in 2017 when the economy was hit by weak oil prices and austerity measures.

“We see only marginal improvement this year for the GCC [Gulf Cooperation Council] compared to 2018, weighed down by oil supply cuts, with the non-oil sector being the primary engine of growth,” said Maya Senussi, senior economist for the Middle East at Oxford Economics.

“The pace of recovery should accelerate in 2020 and 2021 compared with this year but will remain markedly below historical trends,” Senussi said.

Growth expectations for the United Arab Emirates’ economy – the most diversified in the region – fell by 0.1 percentage point since the last quarterly poll, to 3 per cent for 2019 and 3.2 per cent for 2020.

In 2018 growth in the UAE was slower than expected at 1.7 per cent, with Dubai’s economy expanding 1.94 per cent, its slowest pace since a contraction in 2009, when the economy was hobbled by a debt crisis.

“We expect growth in 2019 to be faster than in 2018 as Expo 2020 projects are completed and on the back of increased government spending,” Emirates NBD said in an April research note. But it said “the risks are skewed to the downside”.

The oil-producing Gulf economies were hit by the collapse of crude prices in 2014, forcing them to push fiscal reform measures and economic diversification.

Supply cuts led by the Organization of the Petroleum Exporting Countries and some non-OPEC allies, including Russia, were introduced in January to try to support prices.

The impact on prices and GCC oil output levels of the U.S. decision on Monday to tighten sanctions on Iran, curtailing its oil exports, is not yet clear. Crude prices rose to their highest since November on Tuesday after the decision.

The latest poll continues to predict sizeable but improving budget and current account deficits for the two weakest Gulf Arab economies — Bahrain and Oman — through 2021. Bahrain has said it is on track to deliver a balanced budget in 2022.

Earlier this month, the International Monetary Fund downgraded by 0.2 percentage points its outlook for global growth for the third time since October to 3.3 per cent, saying the world economy is slowing more than expected.