GCC region expected to see fastest growth and biggest surplus in a decade
Muscat – The combined GDP of the six GCC countries is expected to grow by 6.7% this year, the fastest growth rate since 2011, thanks to higher oil prices and increased production in the energy-rich region .
A latest Economic Insight report, commissioned by ICAEW and compiled by global consultancy Oxford Economics, revealed a positive regional economic outlook despite a significant decline in global GDP growth amid rising inflation and rising inflation. interest rate.
Middle East economic growth in 2022 is now projected at 5.5%, slightly up from Oxford Economics forecast three months ago. The positive outlook is underpinned by strong activity projections in the GCC economies.
“GCC GDP is expected to grow 6.7% this year, the fastest rate since 2011, driven by higher oil production, the recycling of government revenues into investment initiatives and, to a lesser extent, household and business spending,” said Oxford Economics. . However, the possibility of a global recession limiting oil demand remains a major downside risk for this view, he added.
Similarly, the International Monetary Fund has also projected GCC economic growth of 6.4% for 2022.
Oil prices continue to support GCC public finances and are expected to contribute to an overall fiscal surplus of 9.7% of GDP for the GCC region, the largest since 2012, according to Oxford Economics. He expects oil prices to average $103.8 a barrel in 2022.
“This should lead to lower debt-to-GDP ratios as much of the GCC retains ample fiscal space. Fiscal break-even prices (as estimated by the IMF) are below $80 a barrel in all GCC countries except Bahrain, suggesting that economic growth in the region will remain robust over the coming years. next few quarters,’ according to the Oxford Economics report.
Inflation remains subdued
Inflation slowed in July in Oman, Kuwait and Qatar, thanks to the easing of food prices, but it increased slightly in Bahrain and Saudi Arabia. The ICAEW and Oxford Economics predict that GCC inflation will average 3.1% this year, up from 2.3% in 2021, before falling back to 2.7% in 2023.
As the US Federal Reserve continues its rate hike cycle to combat rising inflation, all central banks in the GCC region have tightened monetary policy.
“Given the peg of the currency to the US dollar, GCC policy rates tend not to stray too far from those in the US, which are expected to continue climbing through early 2023. favorable energy and fiscal trends, rising borrowing costs will gradually drag down demand and growth, with the impact being felt more in 2023,” the report said.
Mark Billington, Managing Director of ICAEW – International, said: “As oil continues to protect GCC economies, the looming possibility of a recession in the United States and Europe reinforces the importance of accelerating efforts of economic diversification. Fortunately, current indicators measuring the region’s non-oil performance point to continued strength, even as inflation remains elevated.
Scott Livermore, Chief Economist and Managing Director of Oxford Economics Middle East, said: “The Middle East is resisting global economic pressures, but the broader outlook is challenging. The bonanza of rising oil prices has seen markets like Saudi Arabia explode. However, with the OPEC+ alliance likely to reduce production as demand prospects weaken, such growth cannot be sustained without further diversification.
“Continued reinvestment of fiscal surpluses in public projects, increased non-oil trade and new fiscal policy should help shield GCC economies from the worst of recessionary strains,” he added.
According to the ICAEW and Oxford Economics report, travel and tourism activity in GCC countries has picked up momentum, ignoring the impact of strong dollar-pegged regional currencies and supporting the unrecovered recovery. petroleum.
He said inbound travel to the region is exceeding global trends, thanks in part to major international events in the region in 2022, including the upcoming FIFA World Cup in Qatar, which hopes to attract 1.5 million visitors. .