GCC growth set to slow in 2024 due to oil output cuts

The economic growth of the GCC region is projected to significantly slow down this year compared to last year's figures, thanks to the extended oil production cuts implemented by GCC countries as part of OPEC+ agreements, according to a new report.

The latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, projects a slowdown in 2024 as oil production cuts persist. The GCC growth forecast has been revised down to 2.7% from 3.9% three months ago, while non-energy sectors are expected to drive growth in Saudi Arabia and the UAE.

Despite the energy sector exerting downward pressure on GCC economic growth, robust performance in non-energy sectors is expected to offset some of the impact. However, disruptions in shipping routes through the Red Sea and Suez Canal have led to increased freight and raw material costs, suggesting a possible loss of momentum in the coming months, the report said.

GDP growth projections for Saudi Arabia and the UAE have been revised to 2.1% and 4.4%, respectively, down from 4.4% and 4.8% three months ago. These adjustments reflect a strong non-oil economy and the gradual easing of oil cuts from the third quarter.

The sharp decline in GCC oil output last year, resulting from the introduction of oil cuts, set a very low baseline. Even with the OPEC+ group's voluntary extension of output cuts through the second quarter, the regional energy sector is poised for growth this year.

The report forecasts a cumulative expansion of the energy sectors by 1.3%, a notable turnaround from last year’s 5.7% decline. In Saudi Arabia, specifically, oil activities are expected to grow by 0.7% this year after a 9.5% year-on-year plunge in 2023.

Non-energy sectors in the GCC are positioned to continue benefiting from government and private investment.

Hanadi Khalife, Head of Middle East at ICAEW, said, “Despite the GCC economic outlook facing mounting headwinds from the war in Gaza and disruptions in Red Sea trade, we are encouraged by the resilience of non-energy sectors to drive recovery. The UAE and Saudi Arabia’s unwavering commitment to diversifying their economies away from oil and meeting ambitious vision deadlines speak volumes about their pragmatic and fiscally prudent approach.”

Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director at Oxford Economics Middle East, said, “The Middle East faces escalating pressures, with most economies poised for a slowdown and regional fiscal policies remaining relatively unsupportive this year. Nevertheless, Saudi Arabia’s successful raise of $12bn in its largest bond sale since 2017 signals market confidence in the kingdom's creditworthiness. This issuance covers about half of the year’s projected borrowing needs as the government continues spending on diversification projects.”

The report also predicts GCC inflation to hover around 2.5%, primarily driven by housing costs. Positive trends in inflation have eased concerns of additional rate hikes by the Federal Reserve and GCC central banks. The first cut is expected to come in the second quarter, with interest rates gradually declining thereafter. Looser monetary policy will help stimulate regional credit growth and momentum in the real estate sector, supporting investment.

Despite the energy sector exerting downward pressure on GCC economic growth, robust performance in non-energy sectors is expected to offset some of the impact