GCC economies begin recovery
GROWTH IN NON-OIL SECTORS IN SAUDI ARABIA AND UAE ARE GATHERING MOMENTUM
Higher crude production and recovering oil prices will promote growth in an otherwise sluggish oil sector and strengthen fiscal and external balances for the GCC economies, according to ICAEW’s latest Economic Insight report for the third quarter, produced by Oxford Economics.
The report forecast global crude oil price to average at $78 (Dh286) per barrel in the second half of 2018, and $74.5 per barrel for the year. According to the IMF, Bahrain and Saudi Arabia have the highest fiscal break-even oil prices this year at $113 and $87.90 per barrel, respectively. This was followed by Oman and UAE at $77.1 and $71.5 per barrel, respectively. Kuwait and Qatar enjoy the lowest fiscal break-even oil prices at $48.1 and $47.1 per barrel, respectively.
“Although the rise in oil prices promises to support growth in the region, rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector. Moreover, any escalation of the trade war between US, China and the EU could weigh on the region’s economic outlook through weaker external demand and lower oil prices,” said Mohammad Bardastani, ICAEW Economic Advisor and Senior Economist for the Middle East at Oxford Economics.
The outlook for the Saudi economy remains strongly tied to the developments in international oil markets. Oil production in the kingdom is expected to average around 10.10 million barrels per day (bpd) this year, a 1.4 per cent year-on-year increase over the 9.96 million bpd registered last year.
Signs of recovery
According to the report, Saudi Arabia’s $19.2 billion non-oil sector is also expected to support growth, buoyed by pro-growth government initiatives and higher public spending. The non-oil private sector is starting to show some signs of recovery.
The Purchasing Managers’ Index (PMI) for Saudi Arabia and the UAE, the region’s biggest economies, reached their highest levels this year in June, reflecting growing momentum in the non-oil private sector.
Preliminary figures by the Saudi authorities show that real GDP grew by 1.2 per cent yearon-year in the first quarter of 2018, which compares favourably to the same period last year, when the economy contracted by 0.8 per cent.
“Saudi Arabia is on the right track to economic diversification and is implementing the necessary fiscal and social reforms to support these efforts. We are also encouraged by the recent inclusion of Saudi Arabia in the MSCI Emerging Market Index. This will definitely help in attracting foreign investment,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA).
According to the report, outlook for Bahrain’s economy remains stunted by the ongoing contraction in the oil sector and lack of policy space due to persistently wide budget deficits and high levels of public debt. Economic activity in Bahrain is driven primarily by the non-oil sector.
The contribution of the oil sector has continued to decline and will remain a drag on growth this year notwithstanding the turnaround in the oil price.
“Fiscal adjustment must be a priority. The public debt is expected to continue to rise to alarming new levels in the medium term. This highlights the urgent need for a comprehensive strategy to ensure fiscal sustainability and reduce the reliance on external financing,” said Maya Senussi, ICAEW Economic Advisor and Senior Economist for Bahrain at Oxford Economics.
78 $
is the predicted crude oil price per barrel.
1.2 %
is how much the real GDP grew in Saudi Arabia.