The Gulf Cooperation Council (GCC) countries need to step up efforts to boost non-oil revenues amid expectations of less than 1 per cent GDP growth in the region in 2017, according to a new report produced for chartered accountants organisation ICAEW by Oxford Economics.
In the Q2 study, Oxford Economics forecast regional growth would be hit by a 3 per cent contraction in oil producing sectors this year despite a 2.6 per cent increase in non-oil growth.
The company said the GCC countries also faced structural limitations despite benefitting from an uptick in the global economy due to their reliance on commodity exports, the stronger US dollar and a lack of readiness, with the exception of the UAE, to operate as trading hubs.
However, regional economies are expected to benefit from improving conditions next year, with GDP growth of 2.7 per cent expected in the GCC alongside oil output growth of 1 per cent and non-oil growth of 4 per cent.
Oxford forecast oil prices would remain close to $45 a barrel for most of 2017 and reach $55 a barrel by late 2019 as spare capacity is reduced. Brent crude currently stands at just under $49 a barrel after reaching a high of more than $56 between late January and mid April on the back of an OPEC/non-OPEC deal to reduce production.
“GCC countries have to step up their efforts and increase non-oil revenues,” said Tom Rogers, ICAEW economic advisor and associate director of Oxford Economics.
“The introduction of VAT next year is a start but it’s not enough, other measures should be taken to maintain financial steadiness. These measures should be considered as part of broader economic diversification strategies.”
The company forecast the UAE would see GDP growth of 1.7 per cent this year, ahead of recently revised International Monetary Fund (IMF) expectations of 1.3 per cent.
The IMF similarly lowered its forecast for Saudi Arabia to “close to zero” last week.
Oxford said UAE GDP growth was forecast to reach 3.3 per cent in 2018, with the emirates deemed in a stronger position than other GCC countries due to its “diversified economy, excellent infrastructure, political stability and ample foreign assets”.
Despite this, UAE consumers are likely to see an impact on their spending power in the coming years, according to the firm, due to the introduction of a 5 per cent value added tax rate in 2018 and an upcoming selective tax on tobacco and soft drinks.
VAT alone was expected to add 2 percentage points to inflation in 2018, pushing it to 4 per cent overall.