The GCC is expected to post economic growth of 2.3 percent in 2019, a marginal improvement on the previous year of 0.3 percent, according to a new report by the Institute of Chartered Accountants in England and Wales (ICAEW).
It said the GCC economy will be weighed down by renewed OPEC-plus oil production cuts and lower oil prices, with the main source of growth coming from the non-oil sector this year.
Economic Insight: Middle East Q1 2019 noted that despite a strong drive in recent years by GCC authorities to diversify their economies, oil continues to play a dominant role, constituting up to 46 percent of total GDP, adding that the renewal of the OPEC-plus oil production cuts will limit the oil sector’s contribution to overall growth in 2019.
The oil sector will also be dampened by lower oil prices, which is forecast at $64 per barrel in 2019, down by $7 from the average in 2018.
"The oil price trajectory suggests many GCC countries will struggle to balance their budgets in 2019, as the price needed to cover their expenses is well above the current price forecast, notably in Bahrain and Saudi Arabia, which need average oil prices of $110 per barrel and $78 per barrel respectively in 2019," the report said.
It added that the non-oil sector in the GCC is expected to be the primary engine of growth in 2019, forecast to grow by 3.1 percent. This will be supported by higher government spending, notably in the UAE and Saudi Arabia.
Mohamed Bardastani, ICAEW economic advisor and senior economist for Middle East at Oxford Economics, said: “As lower oil prices and production cuts hit the GCC, the non-oil sector will be the main growth engine in 2019. Recent oil market volatility highlights the region’s need for continued economic diversification efforts, including fiscal and structural reforms. GCC governments will have to play an ever growing role in stimulating economic growth in 2019.”
The report noted that economic activity in the UAE is set to accelerate to 2.2 percent in 2019, up from an estimated 1.7 percent in 2018, buoyed by a pick-up in non-oil activity, rising public spending, higher investment ahead of the Expo 2020 and continued regional economic recovery. According to ICAEW, both the oil and non-oil sectors are expected to be supportive of growth this year.
The UAE’s non-oil sector is expected to accelerate from an estimated 1.3 percent in 2018 to 2.1 percent in 2019, supported by expansionary budgets and various pro-growth government initiatives, notably in Abu Dhabi and Dubai, which collectively account for an estimated 90 percent of the UAE’s GDP.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA) said: “The UAE has done a tremendous job in implementing much needed economic reforms in its aim to diversify the economy and achieve its Vision 2021 goals. Large-scale projects in preparation for Expo 2020, new visa rules, expansionary budgets and various pro-growth government initiatives are expected to contribute to the overall growth of the economy in 2019. The predicted growth of the non-oil sector underscores the UAE’s ambitious economic transformation agenda.”
The report said the economic outlook for Saudi Arabia is set to grow at a pace of around 2 percent in the coming year with record budget spending and various pro-growth government initiatives ensuring faster expansion of non-oil activity, even as oil sector growth slows.
Armstrong added: “Saudi Arabia continues to work towards Vision 2030 as its government remains focused on boosting the contribution of its non-oil economy. A record budget spending and various pro-growth government initiatives will most certainly help boost the country’s economic diversification agenda as oil sector growth slows.”
Hiring activity in Saudi Arabia remains subdued - over time this may complicate the Vision 2030 job growth goals, he said.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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