Dubai: Middle East economies including Gulf Cooperation Council (GCC) oil exporters and oil importers from the region are expected to make a decisive turnaround this year, according to a report from accountancy and finance body ICAEW prepared by Oxford Economics.
Overall, the Middle East’s gross domestic product (GDP) is expected to grow 2.9 per cent this year, up from 1.1 per cent in 2017. Economic outlook looks positive this year and in 2019, thanks to the rising oil prices, expansionary fiscal policy and relative improvements in the overall security conditions.
Economic activity is expected to pick up for oil exporters driven by two main factors, rising oil prices and increased government spending. Overall, GCC’s GDP is expected to grow to 2.4 per cent this year, up from 0.1 per cent last year. And in 2019, as the Organisation of the Petroleum Exporting Countries (Opec) phases out its output cut, GDP growth is expected to accelerate further for oil exporters.
The outlook is similarly positive for oil importers. Lebanon’s GDP is expected to accelerate to 2.7 per cent in 2018 from an estimated 1.8 per cent in 2017, boosted by public infrastructure investment and trade and tourism recovery.
“Middle East economies are recovering from the difficult years of a low oil environment, various austerity measures and geopolitical risks. But more reforms are required to address the fundamental problems that have plagued so many countries of the region for so long, including reducing high unemployment rates, promoting fair competition and better regulation, investing in talent and strengthening women’s legal rights,” said Mohammad Bardastani ICAEW Economic Advisor and Senior Economist for Middle East at Oxford Economics.
Improving oil prices, a revival in non-oil sector growth and broad fiscal reforms have improved the 2018 growth prospects of GCC countries.
A new era
Saudi Arabia is undergoing various fundamental economic and social changes. For the first time, Saudi citizens are paying 5 per cent value-added tax (VAT) on goods and services, a sweeping anti-corruption crackdown generated more than $100 billion (Dh367 billion) for the Saudi government, cinemas are expected to open as soon as March, and Saudi women will be permitted to drive from June.
“The outlook for Saudi Arabia’s economy looks positive thanks to reforms and rising oil prices. However, various challenges remain such as rising living costs for households and higher input costs for businesses. Sustainable and effective countermeasures would mitigate the adverse impacts,” said Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia.
Real GDP is expected to rebound to 2 per cent growth in 2018, after contracting by 0.7 per cent last year, underpinned by expansionary fiscal policy and recovery in oil prices. The oil sector contracted by 3 per cent in 2017, primarily due to the Opec deal that saw Saudi Arabia cut supply by about 0.5m barrels per day. The extension of the Opec deal until the end of 2018 will cap oil sector growth, which is expected at 1.1 per cent this year.
The non-oil sector is expected to grow 2.6 per cent in 2018, thanks to various pro-growth government initiatives. The Saudi government announced the largest ever budgeted expenditure, including a 14 per cent year-on-year increase in capital expenditure.