Mideast economies to look up in 2018

En­cour­ag­ing signs emerge from UAE and Saudi Ara­bia as oil prices re­cover


LON­DON: Mid­dle East­ern economies have per­formed bet­ter in 2017 fol­low­ing OPEC pro­duc­tion cuts de­signed to sta­bi­lize the oil price, but not as much as ex­pected — al­though 2018 may bring a more mean­ing­ful re­cov­ery, ac­cord­ing to a PwC re­port pub­lished Wednesday.

PwC’s Mid­dle East Econ­omy Watch said there were high hopes 2017 would be a “turn­ing point” after the OPEC-led move to curb pro­duc­tion, but the re­sults so far have been weaker than an­tic­i­pated. That has capped gains in fis­cal rev­enue and re­stricted gov­ern­ment ex­pen­di­ture ca­pac­ity, the re­port said.

Ad­di­tion­ally, the Qatar po­lit­i­cal cri­sis had cre­ated chal­lenges for firms op­er­at­ing across the GCC, but early data sug­gested that while the dis­pute was hav­ing a neg­a­tive im­pact on some parts of Qatar’s econ­omy, it re­mained man­age­able for the au­thor­i­ties.

“How­ever, if the dis­pute in­ten­si­fies or con­tin­ues for a pro­longed pe­riod, then the eco­nomic im­pact could be­come more se­vere.”

On the other hand, there were en­cour­ag­ing signs of an eco­nomic upturn in 2018. For in­stance, a head of steam was build­ing in UAE, where the PMI hit a two-and-ahalf-year high in Au­gust, and Saudi Ara­bia saw pos­i­tive sen­ti­ment in its non-oil sec­tor, said PwC.

Mean­while, Egypt de­liv­ered much stronger than ex­pected growth of 4.9 per­cent in the sec­ond quar­ter and bur­geon­ing cen­tral bank re­serves were per­haps a lead in­di­ca­tor of higher for­eign in­vest­ment.

Oman was said to be ben­e­fit­ing from its new role as the pri­mary tran­ship­ment hub for Qatar.

Richard Boxshall, se­nior econ­o­mist at PwC Mid­dle East, said: “While the eco­nomic and fis­cal out-turns for the first half of the year are less than an­tic­i­pated, mo­men­tum is build­ing in key parts of the re­gion. These signs sug­gest stronger eco­nomic growth could re­turn in 2018, so long as oil prices main­tain or ex­ceed cur­rent price lev­els.”

Nev­er­the­less, the 2017 pic­ture had been dis­ap­point­ing so far. Early in the year, for­ward mar­kets ex­pected Brent crude to av­er­age $58 a bar­rel. In re­al­ity, it only av­er­aged $52 in the first eight months and, al­though there has been a rally in Septem­ber, bringing prices at one point above $57 for the first time in two years, this is not ex­pected to be sus­tained.

“Av­er­age oil prices in 2017 will be an im­prove­ment on the low of $45 seen in 2016, and above bud­get as­sump­tions in some coun­tries, but well be­low what the ac­tual ex­pec­ta­tions were,” said the re­port.

PwC blamed in­ad­e­quate com­pli­ance with the cuts plus a re­vival of pro­duc­tion in Libya and Nige­ria which, to­gether with the im­pact of US shale “com­bined to avert a ma­jor sup­ply squeeze.”

An ex­ten­sion of pro­duc­tion cuts to March would fur­ther harm fis­cal rev­enue, but PwC ac­knowl­edged talk of an ad­di­tional ex­ten­sion had driven the re­cent oil price rally — al­though it “would erode (gov­ern­ment) rev­enue more,” if im­ple­mented.

PwC said Oman and Qatar deficits were only down by about a third com­pared with the low point in the first part of 2016. But Saudi data seemed to show more im­prove­ment, cut­ting the deficit in the first half of the year by more than 50 per­cent year-on-year.

The Saudi gov­ern­ment had pledged in late June to re­sume var­i­ous pub­lic sec­tor ben­e­fits and bonuses that had been sus­pended in Oc­to­ber-April, and this could push up ex­pen­di­ture in the sec­ond half.

“This sug­gests that deficits could be larger than an­tic­i­pated for the year as a whole, likely prompt­ing ad­di­tional bor­row­ing (such as Saudi’s $8 bil­lion worth of do­mes­tic sukuk, is­sued in July and Au­gust).” even

A model of a new se­cu­rity tun­nel at the Gi­tex 2017 ex­hi­bi­tion that will al­low pas­sen­gers de­part­ing Dubai to avoid se­cu­rity de­lays as their face and iris are scanned us­ing 80 hid­den cam­eras. A new re­port from PwC points to an im­prov­ing out­look for the...

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