Lower GCC growth amid oil cuts, says Oxford Economics

Economic growth in the GCC has been revised downwards to 2.7 per cent from a previous forecast of 3.9 per cent just three months ago.

This is according to the latest Economic Insight report for the Middle East, which has been commissioned by one of the world’s longest-running chartered accountant bodies, ICAEW, and compiled by advisory firm, Oxford Economics.

The latest report says GDP growth for Saudi Arabia in 2024 is expected to top 2.1 per cent, while growth in the UAE is set to reach 4.4 per cent. This comes amid Saudi Arabia’s General Authority for Statistics on Monday reporting a 0.8 per cent contraction for 2023.

READ MORE: Saudi Arabia’s real GDP shrinks 0.8% in 2023, oil sector weighs

Oxford Economics’ current growth forecasts are lower than previous projections from three months ago when it was expected that Saudi Arabia would top 4.4 per cent this year, while the UAE would experience a 4.8 per cent expansion.

Key factors impacting growth include several recent cuts in oil production. Just this month, several OPEC+ countries announced the extension of additional voluntary cuts of 2.2 million barrels per day for the second quarter of 2024.

Saudi Arabia has embarked on cutting 1 billion barrels per day, while the UAE has cut 163,000 barrels per day, Kuwait (135,000 barrels) and Oman (42,000 barrels). OPEC+, in a recent statement, said this move is targeted at supporting market stability.

Oxford Economics, though, has gone further to note that recent challenges in shipping routes through the Red Sea and Suez Canal have also “pushed up freight and raw material costs”, according to a statement released Monday.

“The Middle East faces escalating pressures, with most economies poised for a slowdown and regional fiscal policies remaining relatively unsupportive this year,” says Scott Livermore, ICAEW economic advisor, and chief economist and managing director for Oxford Economics Middle East.

“Nevertheless, Saudi Arabia’s successful raise of $12bn in its largest bond sale since 2017, signals market confidence in the Kingdom’s creditworthiness. This issuance covers about half of the year’s projected borrowing needs as the government continues spending on diversification projects,” says Livermore.

While there is downward pressure on oil growth, the report still forecasts a cumulative expansion of the GCC’s energy sectors by 1.3 per cent, marking a turnaround from what it said was a 5.7 per cent decline last year.

“In Saudi Arabia, specifically, oil activities are expected to grow by 0.7 per cent this year after a 9.5 per cent year-on-year plunge in 2023,” says a statement from the companies.

Non-oil growth

The experts from Oxford Economics go on further to say that non-oil growth will still prove to be strong in the GCC this year.

According to the report, key factors to look out for in the non-oil economy are the following:

• “Non-energy sectors in the GCC are positioned to continue benefiting from government and private investment. Saudi Arabia is pushing forward with Vision 2030 by directing funds into giga-and-mega-projects and turning its attention to Expo 2030 and the FIFA World Cup 2034.”
• “Investment activity is expected to be strong in the UAE too as plans around ‘We the UAE 2031’, Dubai Economic Agenda D33, and other strategies are implemented.
• “Meanwhile, Qatar’s plans for LNG capacity expansion in the latter part of this decade are expected to have a positive medium-term impact.”
• “The tourism sector will remain key to both Saudi and UAE growth agendas with Dubai International Airport welcoming 86.9mn passengers last year, above pre-pandemic numbers, and the Kingdom’s airports welcoming 106.2mn visitors last year, up 12 per cent on 2022.”
• “The report also predicts GCC inflation to hover around 2.5 per cent, primarily driven by housing costs. Positive trends in inflation have eased concerns of additional rate hikes by the Federal Reserve and GCC central banks. The first cut is expected to come in Q2, with interest rates gradually declining thereafter. Looser monetary policy will help stimulate regional credit growth and momentum in the real estate sector, supporting domestic investment.”

Commenting on the report, Hanadi Khalife, head of Middle East, ICAEW, further spoke to the advancements made by countries such as the UAE and Saudi Arabia in recent years.

“The UAE and Saudi Arabia’s unwavering commitment to diversifying their economies away from oil and meeting ambitious vision deadlines, speaks volumes about their pragmatic and fiscally prudent approach,” said Khalife in a statement.

“Initiatives such as the Kingdom’s bond sales abroad to address fiscal deficits and the UAE’s removal from the Financial Action Task Force (FATF) grey list will enhance both countries’ reputations and help attract more foreign direct investment,” Khalife added.

Founded in 1880, ICAEW represents more than 202,000 chartered accountants and CA students from across the globe. Meanwhile, Oxford Economics is among the world’s most prominent advisory firms, providing analysis on 200 countries, 100 industries and 3,000 cities.