GCC to post 6.7% GDP growth despite oil price easing

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Oil continues to buffer GCC economies despite the easing of prices with countries in the region expected to report a surplus of 9.7 per cent of their combined gross domestic product in 2022, driving a decline in their debt-to-GDP ratios while posting a GDP growth of 6.7 per cent, the fastest since 2011.

While mounting recession fears across the globe pose a downside risk to the GCC outlook, most economies in the GCC retain plenty of fiscal headroom, with fiscal breakeven oil prices remain below $80 barrels per day (bpd) in all member countries except Bahrain, suggesting economic growth across the region will remain supported in the coming quarters, analysts observed in ICAEW Economic Update.

The analysts at the Institute of Chartered Accountants in England and Wales (ICAEW), revised their 2022 oil price projection downwards to $103.8bpd, against their forecast of $112bpd three months ago, while warning that a positive resolution to Iran nuclear deal negotiations could see oil prices fall further. Oil prices have been trending down since the beginning of June and Brent crude prices now stand below $100bpd.

In the face of mounting risks to global demand, the Opec+ alliance decided to lower the group’s oil production target for October back to August level, a 100,000bpd cut relative to September. Several producers have faced capacity constraints while others have been unable to meet quotas.

The outlook for the Middle East remains positive despite a significant downgrade in global GDP growth, rising inflation and rising interest rates. ICAEW analysts project GCC economies to grow by 6.7 per cent in 2022, the fastest since 2011.

The growth is not only driven by higher oil production but also the recycling of government revenues into investment initiatives and, to a lesser extent, household and business spending.

“The possibility of a global recession limiting oil demand is a key downside risk to this view. Meanwhile, the outlook is much more challenging in the rest of the Middle East region, especially for countries like Jordan and Lebanon, where domestic demand is under pressure from high inflation,” they said.

According to the International Monetary Fund, countries in the Middle East are expected to gain up to $1.3 trillion in the next four years from additional oil revenues due to high oil prices. The region's oil and gas exporters, especially the Gulf Cooperation Council (GCC) countries, "will see additional cumulative oil revenues of $1.3 trillion through 2026," IMF director for the Middle East and North Africa, Jihad has said. For the GCC, the growth rate has been estimated at 6.4 per cent in 2022 by the IMF. In 2021, its growth rate was 2.7 per cent.

In the GCC, travel and tourism activity has gathered momentum, shrugging off the impact of strong dollar-pegged regional currencies and underpinning non-oil recovery. Inbound travel to the region is outpacing global trends, in part thanks to major international events in the region in 2022, including the forthcoming Fifa World Cup in Qatar, which the authorities hope will attract 1.5 million visitors. Recent tourism statistics point to a 19 per cent increase in visitor numbers in Qatar in H1 compared to 2021 overall, thanks to a surge in arrivals from other GCC countries but also India, the US and the UK.

“Qatar looks set to surpass 2019 visitor levels this year (2.1 million), with other countries, the UAE in particular, also benefiting. That said, in Dubai, the number of visitors was still about 15 per cent lower than in first half of 2019, despite the boost from the delayed Expo 2020,” the ICAEW report said.

The analysts forecast GCC inflation at 3.1 per cent this year, before it slows to 2.7 per cent in 2023. The latest inflation figures for several of GCC's economies lineup with price pressures peaking in the region. Inflation slowed in Kuwait, Oman and Qatar in July, thanks to easing food prices, though it edged up in Bahrain and Saudi Arabia. Inflation data for the UAE economy have not been released since December 2021, and the jump in Dubai inflation may overstate country trends.