New report says economic outlook in the Gulf region is set to remain tough
The economic outlook in the Gulf region is expected to remain tough, with several further squeezes on household income in 2018, according to a new report.
The Institute of Chartered Accountants in England and Wales (ICAEW) report said overall GDP is expected to grow by 2.4 percent next year and rising to 4 percent in 2019.
The accountancy and finance body said any extension of OPEC’s production cut deal, which ends on March 31, 2018, would delay the recovery.
The report said governments across the region are unlikely to find any solace in the oil market, which looks likely to require an extension of OPEC’s production cut deal merely to stabilise prices around $45-50.
In this case governments would come under further pressure to prioritise public spending in growth-enhancing areas and find new revenue sources in order to stop public debt from accelerating.
One of the key challenges for the Middle East economies as we move into the final months of 2017 and into 2018 is the ongoing squeeze on household incomes, ICAEW added.
It also noted that the upcoming GCC value-added tax is expected to increase the cost of living in impacted economies by around 2.5 percent in 2018, and 0.5 percent in each year from 2019-2022.
Households in many countries are also feeling the pinch from higher energy costs – fuel prices were raised by 6 percent in the UAE earlier this year and are expected to rise in Saudi Arabia in early 2018, the report said.
"Together with the impact of a weaker dollar on import costs, these pressures are expected to drive consumer price inflation at the GCC level from just 1.2 percent in 2017 to 4.7 percent in 2018, and 3.5 percent in 2019. Consumer spending is also expected to grow 2.5 percent in 2018 and 2019 – compared to an average of 4.2 percent per annum from 2010-2016," added the ICAEW.
Tom Rogers, ICAEW economic advisor, said: “GCC countries need to shift focus towards deeper, multi-dimensional fiscal policy and institutional reforms. These will help to secure long term fiscal sustainability, and also support the development of vibrant private sectors.
"Furthermore, by boosting investor and market confidence, they can also start a virtuous cycle of stronger investments, including FDI, and output growth in the near term.”