The business cycle in Gulf countries in likely to take “several quarters at least to fully recover” from twin shocks of the coronavirus pandemic and the drop in oil prices, according to S&P Global Ratings.
Corporate and infrastructure companies in the six-nation Gulf Cooperation Council are expected to operate “conservatively” in 2021 as the economy recovers, according to the report.
The GCC comprises Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain.
“Absent a substantial recovery in revenue generation, they are likely to focus on cost optimisation, proactively managing their liquidity, and preserving their cash lows, while new investments will continue to take a back seat in most sectors,” S&P credit analyst Timucin Engin wrote in a report.
“After suffering a major contraction in 2020, we expect aggregate real GDP growth of just 2.5 percent in the GCC economies between 2021 and 2023.”
S&P also said: “Pressures look set to continue in corporate sectors, particularly for companies operating in tourism, aviation, real estate, and non-food retail.”
The resolution of the dispute between Qatar and Saudi Arabia, the UAE, Bahrain and Egypt is expected to be positive for Qatar’s real estate and tourism sectors, S&P said, although it added: “We think it is too early to expect demand for these two sectors to improve significantly.”
On the UAE, S&P said normalisation with Israel has also created “major opportunities for cooperation”, particularly in Dubai, adding: “Although the UAE implemented several structural measures in 2020 that are supportive of its long-term business prospects, we still expect the recovery in the key sectors powering Dubai’s economy to take time.”
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