What would the Gulf’s economic outlook for 2022 look like? This is a question raised by all, whether an individual, a business owner, and local and international investors. The GCC has become an integral player in the global economy and as a destination for foreign investments, as evidenced by the trillions channeled in since oil was discovered 90 years ago.
Clearly, GCC countries were able to overcome their biggest economic crisis ever caused by the pandemic, paving the way for focussed efforts and directing resources prudently to accelerate growth. This was helped by steady rise in oil prices and the confirmation of mega economic diversification projects. These include production of renewable energy sources, as well as the adoption of more economic transparency in the aftermath of the COVID-19 hit.
These factors form a strong foundation for a robust start in the new year. Regarding oil price expectations, the International Energy Agency predicts demand in 2022 will reach 2019 levels of 99.5 million barrels per day, with a marked decline in some key production reservoirs, such as the US, which is expected to reach an output of 11.2 million barrels compared to 13 million barrels in 2019.
This requires OPEC+ countries, specifically the GCC nations, to increase production, which should lead to $85 a barrel levels as the average for 2022, according to the Bank of America. It sounds a practical forecast, especially since this month’s experience proved that the pumping of strategic reserves of consuming countries, particularly by the US - which pumped 18 million barrels - did not work. The use of strategic reserves led to a temporary decline and then prices rose to around $80 at the beginning of this week.
In surplus territory?
Aside from the financial reforms and the volume of non-oil investments announced by GCC countries, the growth of the oil and non-oil sectors will exceed recent forecasts. Saudi Arabia’s Ministry of Finance announced that it expects the Kingdom’s economy to grow by 7.6 per cent in 2022, compared to 2.6 per cent in 2021. The remaining GCC countries are expected to achieve similar trajectories, which will lead to attracting more domestic and foreign investment and creating more jobs.
The growth is expected to involve all non-oil sectors, and the created growth will in turn reflect well on the financial markets and in the shares of listed companies. The GCC’s annual budgets, an indicator of financial strength due to the great impact government spending will have due to the rise in oil prices, seem promising. Most of the budgets will achieve good surpluses, with Saudi Arabia announcing its 2022 budget with a surplus of $24 billion for the first time since 2013.
Kuwait expects a $3.3 billion surplus in the 2021-2022 budget, while the UAE has issued a balanced budget for the next five years with the possibility of achieving a surplus. Qatar is also expected to achieve a surplus in its 2022 budget, and the same could hold true in Bahrain and Oman. If oil prices rise above the level projected in the budgets have been set, the size of surpluses could well exceed past ones.
With the optimistic projections by the World Health Organization that COVID-19 might be eliminated in the coming year, the GCC’s economic outlook indicates that they will achieve what can only be a remarkable recovery.
-- The writer is a specialist in energy and Gulf economic affairs.