Economic growth in the Gulf region is set to improve next year, after two difficult years of low oil prices and government austerity measures, according to a report released on Wednesday.
In its 2018 forecast, global advisory firm Oxford Economics predicted that the six members of the Gulf Cooperation Council (GCC) will grow by 2.7 percent, compared to just 0.3 percent in 2017.
This is the fastest expansion in three years and comes on the back of rising oil prices, helping to ease government austerity measures put in place over the last few years, the report said.
In a breakdown of individual GCC countries, the report said Oman will lead the way with 5 percent growth next year, compared to 0.2 percent in 2017. The United Arab Emirates (UAE) is likely to see 3.3 percent growth, up from 1.7 percent this year. Qatar, which has been the focus of an economic and political boycott by GCC neighbours Bahrain, the UAE and Saudi Arabia, is predicted to grow by 3.1 percent, compared to 1.3 percent in 2017.
The pace of the turnaround will be slower in Bahrain, with growth set to remain at 1.8 percent next year, similar to levels seen in 2017. Similarly, Saudi Arabia will grow by 2 percent next year, after a decline of 0.3 percent in 2017. Kuwait’s economy is also forecast to grow by 2.4 percent, following a decline of 1.7 percent in 2017.
Despite the upbeat outlook, the report warned that some potential geopolitical risks in the region could undermine growth in 2018, such as the increased tensions between Saudi Arabia and Iran, the ongoing GCC dispute with Qatar, the anti-corruption crackdown in Saudi Arabia and the resignation of the government in Kuwait in October.
The report’s findings come as the Organization of the Petroleum Exporting Countries this week said it expects the world oil market to be balanced by late 2018 as its deal with other producers to cut output reduces excess oil in storage. Prices this week were trading near $64 a barrel, close to their highest since 2015.
In line with the Oxford Economies predictions, Reuters reported this week that the non-oil part of the UAE economy is expected to grow 3 percent this year, up from 2.7 percent last year.
“The recent improvement in oil prices has shed a positive sentiment on the economic activity in the non-oil sector and boosted economic confidence,” the UAE central bank said in a third-quarter review published on Wednesday, Reuters reported.
At the same time, Dubai announced record spending of 56.6 billion UAE dirhams ($15.6 billions) for 2018, with much of it being spent on infrastructure development ahead of the emirate’s hosting of the World Expo 2020, the Khaleej Times reported.
The UAE’s economy, the second largest in the Arab world after Saudi Arabia, was also given the thumbs up by a senior International Monetary Fund official this week, who predicted that the country’s economy is expected to recover gradually next year, with no significant blow to growth expected from the introduction of a 5 percent value-added tax in January.
“We see a gradual recovery for the UAE over the next few years on the back of firming oil prices, a pick-up in global trade, investment for Expo 2020 and easing fiscal consolidation,” Natalia Tamirisa, IMF mission chief to the UAE, told Reuters in a phone interview this week.
Source: Reuters (Writing by Shane McGinley; Editing by Yasmine Saleh)