New research also says momentum is building in region, especially in the UAE
Stronger economic growth could return to the Gulf region in 2018, as long as oil prices maintain or exceed current price levels, according to a new research note from PwC.
Its Middle East Economy Watch said high hopes that 2017 would be a turning point for oil exporting nations, as OPEC-led production cuts rebalanced the market have largely been dashed.
Brent crude oil has averaged $52/barrel so far this year, lower than the $58/barrel expected at the start of the year.
PwC said that available fiscal data for Oman and Qatar for the first half of the year shows that deficits are down by about a third compared with the first part of 2016, less than anticipated.
It added that Saudi data shows more improvement, cutting the deficit in the first half of the year by more than 50 percent year-on-year.
However, the Saudi government is pledging to repay various public sector benefits and bonuses could increase expenditure in the second half, leading to larger deficits than anticipated for the year as a whole.
PwC highlighted that notwithstanding these challenges, some economies in the region do appear to be turning the corner with momentum building in the UAE, where the private sector performance hit a two-and-a-half-year high in August, while Saudi Arabia is also seeing positive sentiment in its non-oil sector.
Richard Boxshall, senior economist at PwC Middle East, said: “While the economic and fiscal outturns for the first half of the year are less than anticipated, momentum is building in key parts of the region. These signs suggest that stronger economic growth could return in 2018, so long as oil prices maintain or exceed current price levels.”
The research note also said that lower for longer oil price environment has prompted renewed debate in the suitability of the GCC currency pegs.
Since the mid-1980s, the Gulf currencies have all been pegged at fixed rates to the US dollar, with the exception of Kuwait which pegs to a basket of currencies.
"For now, while the region’s economy remains dominated by oil and other commodities traded in dollars, the advantages of retaining the pegs outweigh the downsides," said Boxshall, who added: “A change in the currency regime is only likely to make good economic sense if and when commodities play a much smaller role in the Gulf economies as a result of successful diversification efforts. For most countries, this remains a fairly distant goal.”