Higher oil prices coupled with improved global economic conditions are expected to support growth momentum of the GCC countries, according to a new report.
Seltem Iyigun, Coface economist for Middle East & Turkey, said real GDP growth rates in the GCC are expected to average around 2.3 percent compared to 0.6 percent in 2017.
Growth will remain below pre-2014 levels due to volatile energy prices and geopolitical uncertainties, she said.
“We see a slight recovery in the growth momentum of GCC nations’ GDP on rising oil prices. The recent extension in oil production cut is a positive sign for oil price outlook in the near term, but prices remain volatile,” she said.
Oil prices averaged $54 a barrel in 2017, up from $46 in 2016, and are expected to average at $57 in 2018.
Iyigun said the UAE and Oman are expected to lead growth rates in the Gulf this year with 3.8 percent, followed by Kuwait with 3.1 percent.
The Coface GCC Economic Outlook also predicted 2 percent growth in Bahrain and 1.1 percent growth in 1.1 percent.
Iyigun said that tighter liquidity conditions will remain in the region following the recent US Federal Reserve rate hike because regional currencies are pegged with the US dollar.
She added that the UAE’s high performing non-oil sectors are expected to drive growth. The country’s private consumption will also likely remain among the main drivers of growth in 2018, sustained by household consumption and higher international tourism.
“We believe the UAE is a safe haven despite regional uncertainties and geopolitical situation,” Iyigun said.
While the country’s inflation rate is predicted to be higher than last year, the recently rolled out VAT will drive in more government revenues given the UAE’s large consumer base and the importance given on retail spending, especially from foreign visitors, she noted.
The construction sector, which is one of the main pillars of UAE’s economic diversification strategy, will continue to be supported by demand related to the upcoming Expo 2020, the report added.
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