GCC economic growth set to gain momentum in 2019

OVERALL GDP PROJECTED TO GROW 2.7% IN 2019 AFTER STAGNATING IN 2017

GCC countries are expected to see a pickup in economic growth in 2018 and 2019, according to the latest forecasts by the Institute of International Finance (IIF).

Higher oil prices and improved output, along with some easing in fiscal consolidation, are driving the growth.

“We expect economic conditions to strengthen in the GCC, with overall growth of 2.3 per cent in 2018 and 2.7 per cent in 2019 after stagnating in 2017. Domestic demand should strengthen with [the] easing of fiscal consolidation,” said Garbis Iradian, IIF’s chief economist in the Mena region.

A tighter monetary policy, in the context of the pegged exchange rates in the GCC, is expected to offset some of the gains from an expansionary fiscal stance.

“Monetary tightening and the rise of borrowing costs come at a time when credit growth remains subdued and private sector economic activity is weak, particularly in Saudi Arabia,” said Iradian.

Positive outlook

The IIF’s outlook on the region follows a very positive economic outlook for the UAE from the International Monetary Fund (IMF). According to the IMF’s latest Article IV Consultation, the UAE economic growth is expected to strengthen over the next few years on higher oil prices and increased government spending.

“With oil production and government spending set to rise, overall growth is projected to strengthen to 2.9 per cent this year and 3.7 per cent next year,” said Natalia Tamirisa, the IMF team leader.

The IIF has a slightly more conservative GDP forecast for the UAE at 2.2 per cent in 2018 and 2.6 per cent in 2019.

For the GCC as a whole, the IIF expects nonhydrocarbon growth to accelerate to 3.2 per cent by 2020. With higher oil prices and rising output, the fiscal positions of GCC states are expected to improve. The 37 per cent rise in average oil prices in 2018 is leading to a market turnaround in external balances for oil exporters. The combined current account surplus of the 10 Mena oil exporters is projected to rise by about $150 billion (Dh551 billion) to $197 billion in 2018. Of this, $169 billion is accounted for by GCC countries

“The consolidated fiscal deficit of the GCC will narrow significantly. Higher oil revenues and the further improvement in nonhydrocarbon revenues will more than offset the 15 per cent increase in public spending in 2018. The current account surplus will widen from $49 billion in 2017 to $188 billion in 2018, equivalent to 10 per GDP,” said Iradian.

Strong banks

According to the IIF, financial soundness indicators suggest that the banking systems across the GCC remain sound. Capital adequacy ratios exceed 16 per cent in the six GCC countries.

The share of non-performing loans (NPLs) to total loans stands at less than 2 per cent in Saudi Arabia, Qatar, Kuwait and Oman, and between 4 and 7 per cent in Bahrain and the UAE.

Private credit growth remains subdued due to weak domestic demand. “Despite growing emerging market concerns, appetite for GCC debt remains high,” said Jonah Rosenthal, senior analyst at the IIF. “Saudi Arabia issued large tranches of sovereign debt in the first half of this year in anticipation of higher global interest rates. Qatar has also returned to international debt markets with a sizeable issuance of bonds.”