GCC non-oil sector expected to grow 2.6% in 2017: Report
26 Jul 2017 - 0:10
The acceleration of global trade in the first half of 2017 is expected to be felt unevenly across GCC economies and will probably see the region’s GDP growth easing to just short of 1 percent in 2017, according to ICAEW.
In a new report, released yesterday, the accountancy and finance body noted governments across the region must increase their non-oil revenues in order to sustain longer oil production cuts with modest oil prices.
The report ‘Economic Insight: Middle East Q2 2017’, produced by Oxford Economics, ICAEW’s partner and economic forecaster, anticipated non-oil sector growth across the GCC to reach 2.6 percent in 2017, this will be offset by a further 3 percent contraction in the oil-producing sectors.
Although the broad-based pick up in the world economy is providing a useful tailwind to some GCC economies, others are likely to benefit far less from this rebound due to a range of structural reasons.
The three main limitations are: heavy reliance on commodity exports and low non-oil exports; the strengthening US dollar in a longer-term context which undermines the export competitiveness of dollar-pegged economies; and a lack of readiness (with the exception of the UAE) to operate as key east-west trading hubs.
The principle mechanism through which the region’s economies might expect to benefit from faster trade and overall growth would be through the more traditional channel of the impact on oil demand and prices.
According to the report, Opec’s decision to extend its current production cuts from July 2017 to March 2018 failed to have much impact on oil prices through May and June – partly because compliance outside the GCC is likely to be patchy, and because any rebound in oil prices will bring more output back onstream in the US.
“We expect oil prices to remain close to $45/barrel through most of 2017, creeping up through $55/barrel by late 2019 as spare capacity in the world market is closed,” noted the report.
However, the 2018 outlook is likely to be more positive. Oil output is expected to rise 1 percent complementing momentum in the non-oil sector (which is expected to grow by 4 percent) resulting in overall GDP growth of 2.7 percent.
The report does warn, however, that any further oil price weakness or escalation of tensions in the region, would clearly pose a downside risk to growth.
Tom Rogers, ICAEW Economic Advisor and Associate Director of Oxford Economics, said: “GCC countries have to step up their efforts and increase non-oil revenues. 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.”
Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “The UAE is in a stronger position than other countries in the region due to its diversified economy, excellent infrastructure, political stability and ample foreign assets. Its reputation as a trade hub has helped the country to benefit from the rebound in the world economy more immediately than other economies in the GCC.”