GCC countries registered an average growth of 5.8 percent in 2012 but are set to see slower rates of growth this year, according to the Institute of International Finance (IIF).
It said average growth in 2013 in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, is likely to fall to 3.8 percent.
Growth is projected to moderate "due to flattening crude oil production", the IIF said in a statement.
The expansion of the nonhydrocarbon sector, more representative of economic activity, is forecast to stay robust at around five percent this year, the IIF added.
The IIF is a global association of financial services firms with more than 470 member institutions, including more than 100 members in the Middle East and North Africa region.
George T Abed, IIF senior counsellor and IIF director for Africa and the Middle East, said: "The GCC countries have pressed ahead with economic diversification as the share of the hydrocarbon ratio has continued to decline, from 41 percent in 2000 to 27 percent most recently.
"Growth has been driven by rising public sector spending, especially on physical and social infrastructure, and buoyant private sector activity. However, to sustain this momentum as the share of the hydrocarbon sector continues to decline, structural reforms need to be deepened and sustained.
"Among the priorities is a continued review of public spending with the aim of tempering its growth while reducing inefficiencies such as energy subsidies, and diversifying sources of revenues.
"Furthermore, especially for the more populated countries, ongoing efforts to reorient work incentives and promote private sector employment of nationals must be reinforced and expanded."
Dr Garbis Iradian, IIF deputy director, Africa and Middle East Department, and principal author of the report, added: "We expect average oil prices to be $108 per barrel this year.
"The GCC's crude oil production is projected to decrease slightly. As a result, the consolidated external current account surplus for the GCC is likely to decline from a peak of $389bn in 2012 to $334bn in 2013, but still leading to sizeable accumulation of foreign assets, which could rise to around $2.5 trillion by year-end."
The IIF said it expects growth in the UAE to moderate to 3.6 percent in 2013 from 4.8 percent in 2012, due to much smaller increase in crude oil production.
Nonhydrocarbon growth, however, is forecast to accelerate slightly to 4.5 percent in 2013, driven by higher government capital spending in Abu Dhabi and continued robust growth in trade, tourism, and transportation in Dubai.
Iradian cautioned that the Dubai debt episode has left markets with some concerns that the lessons of the past may not have been fully absorbed, and that efforts should continue to focus on strengthening the balance sheets of government related entities.
The IIF report said that the main downside risk to the GCC outlook stems from the possibility of much lower oil prices for a sustained period of time.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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