The growth forecast for the GCC has slipped to 2.2%, down from the 2.7% recorded three months ago, with a slow recovery predicted for the region in 2024 due to extended oil production curbs.

Findings of the latest Economic Insight report by the Institute of Chartered Accountants in England and Wales (ICAEW) and Oxford Economics further revealed the OPEC+ group’s extension of voluntary output cuts through Q3 imply a delayed recovery in GCC energy sectors.

In early June, OPEC+ announced that it would extend oil output cuts through Q3, before gradually phasing them out from October until the end of 2025.

“GCC oil output will now shrink by 2.6% this year instead of the 1.3% expansion forecasted three months ago,” the report stated, with Saudi Arabia, which is cutting production to the greatest extent, will see its oil activities contract by 5% this year, down from a predicted growth of 0.7% three months ago.

According to ICAEW, despite the global economy proving relatively resilient, OPEC+ discipline in curtailing production and ongoing regional tensions with the ongoing Israel-Gaza war, have seen oil prices struggle to remain above $80pb.

“Oil output cuts mean that the energy sectors will be a drag on economic growth this year, however the outlook for the non-energy sectors remains robust,” the report stated. “The PMIs remain firmly in expansionary territory, underpinned by strong domestic activity, with business sentiment running high despite some upward pressure on costs. Full 2023 GDP growth data remain pending in several countries, but we estimate the GCC economy grew 0.6% last year.”

High-frequency data paints a positive outlook for non-energy sectors across the GCC, the report stated. In Saudi Arabia, investments are expected to flow into key sectors supporting giga-projects, including construction, manufacturing, and transportation. Strong momentum in the sports and entertainment sector, along with the tourism and hospitality sectors will likely follow.

Non-oil growth

ICAEW stated non-oil economies will continue to grow despite the GCC’s fiscal positions deteriorating. Saudi Arabia, Bahrain, and Kuwait will likely see budget deficits this year and next as the current oil price level is below the fiscal breakeven point. However, the overall GCC budget position will likely remain in surplus, bolstered by strong financial standings and favourable credit ratings, allowing continued access to funding from capital markets and IPOs.

“While geopolitical risks present headwinds for the GCC and wider Middle East, we are encouraged by the ongoing commitment to diversification and sustainability targets,” said Hanadi Khalife, Head of Middle East, ICAEW.

“Qatar, for example, became the first GCC sovereign to issue green bonds despite not having explicit net-zero targets. Bahrain is also aligning its non-oil economic growth with its Economic Vision 2030 and COP28 commitments to reduce carbon emissions by 30% by 2035,” he added.

According to Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, despite escalating pressures in the region, amid slowing global economies, the GCC remains “relatively positive” due to strong bilateral deals and investment.

(Writing by Bindu Rai, editing by Seban Scaria)