GCC’s non-oil sector sees robust growth despite production cuts, ICAEW says

The overall GCC budget position is projected to remain somewhat in surplus this year, driven by robust financial standings and favourable credit ratings

by Kudakwashe Muzoriwa

June 25, 2024

GCC’s non-oil sector sees robust growth despite production cuts

Image credit: Justin Setterfield/Getty Images

The non-oil sector will remain the key growth driver in the GCC in 2024 and beyond, according to the Institute of Chartered Accountants in England and Wales (ICAEW), as regional countries’ fiscal positions are expected to weaken following the extension of crude production cuts by OPEC+ in June.

GDP growth in the oil-rich GCC is expected to slow in 2024 to 2.2 per cent down from 2.7 per cent three months ago, though non-energy sectors remain resilient.

ICAEW projected that Saudi Arabia, Bahrain and Kuwait would see budget deficits this year and in 2025 as the current oil price level is below the fiscal breakeven point.

“The OPEC+ group’s extension of voluntary output cuts through Q3 2024 implies a delayed recovery in GCC energy sectors,” the accounting body said in a report compiled by Oxford Economics.

The region’s oil output is projected to shrink by 2.6 per cent in 2024 instead of the 1.3 per cent expansion forecasted three months ago. Saudi Arabia will see oil activities contract by 5 per cent this year, down from a predicted growth of 0.7 per cent three months ago, the report revealed.

However, the overall GCC budget position is projected to remain somewhat in surplus this year, driven by robust financial standings and favourable credit ratings that will allow continued access to funding from capital markets and initial public offerings.

GCC GDP growth in 2024

ICAEW projected that Qatar’s economy will expand by 2.2 per cent in 2024 and will rise to 2.9 per cent in 2025. Given that Qatar is not involved in the OPEC+ production quotas, the Gulf state’s gas sector is a priority, with authorities doubling down on the North Field gas expansion project, promising a positive medium-term impact.

On the other hand, Bahrain continues to diversify its economy and reduce its reliance on oil revenues. The kingdom’s non-oil sector grew by 3.4 per cent in 2023, accounting for nearly 84 per cent of its GDP.

“Bahrain has also seen significant investment growth following the launch of the Golden Licence initiative in April 2023, which requires a minimum investment of $50m and the creation of at least 500 jobs,” said Scott Livermore, ICAEW economic advisor and chief economist and managing director at Oxford Economics Middle East.

“Bahrain’s financial services sector contributed nearly 18 per cent of GDP, surpassing oil, which contributed 16 per cent.”

Saudi Arabia’s non-oil sector is set to receive a boost from investments into critical sectors supporting giga-projects, including construction, manufacturing, and transportation. The Arab world’s biggest economy is expected to witness strong momentum in the hospitality sector, as tourism is expected to remain key to the country’s growth agenda.

Tourism is also a strategic sector in other GCC countries and will remain a key growth driver. Tourism activity has rebounded strongly, with record visitor numbers across the GCC in 2023, extending into this year.

The GCC inflation forecast for 2024 has been lowered by 0.3 percentage points to 2.2 per cent in 2024, with a further slowdown to 2.1 per cent expected next year. Excluding housing rents in some countries, inflationary pressures remain contained, with rates below 2 per cent.