Gulf region is forecast to see average growth of 2.8% next year from just 0.3% in 2017
Several economies in the Middle East, particularly those in the GCC, are transitioning towards a “new normal” in 2018, allowing spending to start recovering gradually, according to a new report.
The Institute of Chartered Accountants in England and Wales (ICAEW)’s Economic Insight: Middle East Q4 2017 said that GDP across Gulf countries is expected to grow from just 0.3 percent in 2017 to 2.8 percent next year.
The wider Middle East is set to see an acceleration from 1.4 percent this year to 3.2 percent in 2018, it noted.
However, the accountancy and finance body said several risks remain to growth in the region, including those from politics and security.
The report added that public finances now look to be on a more sustainable path in most economies in the GCC thanks to three main factors - the upcoming Value-Added Tax; social change in Saudi Arabia and the period of emergency austerity which saw public spending cut by almost 20 percent from 2015-2017.
With OPEC-plus oil production cuts likely to be maintained through 2018, and reversed in 2019, GDP growth is expected to pick up to around 4 percent in both the GCC and wider Middle East in 2019, the ICAEW noted.
Within this, GCC oil GDP is forecast to rebound from a 2.3 percent contraction in 2017 to growth of 1.7 percent in 2018 and around 1 percent stronger in 2019. Growth in the GCC non-oil sector is forecast to pick up from 2.4 percent in 2017 to 3.7 percent in 2018 and 4.7 percent the year after.
Tom Rogers, ICAEW economic advisor, said: “Economic growth prospects of the Middle East countries, particularly the GCC, are projected to improve in 2018 and the years after. But the political and security risks remain high and could limit or delay the recovery in the region.”
He said 2018 will be a key year of transition for Saudi Arabia in several contexts. For the first time, Saudi citizens will pay VAT on the goods and services they buy, Saudi women will be permitted to drive, and private (and foreign) investors may be able to take a stake in Saudi Aramco.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA), added: “Saudi Arabia is moving in the right direction with regards to economic reforms. There is clearly increasing momentum behind the shift towards a more market-driven economy in Saudi Arabia.
"But this shift will take some time and for the coming years the economy will remain heavily influenced by traditional growth drivers – the oil sector and the importance of government spending.”