|17 February, 2020

Gulf states could face higher fiscal deficits as coronavirus set to cut global oil demand, says analyst

Oil prices drop 20% since outbreak on concerns of falling demand

Image used for illustrative purpose. Silhouette Oil Pumps On Field Against Cloudy Sky During Sunset.

Image used for illustrative purpose. Silhouette Oil Pumps On Field Against Cloudy Sky During Sunset.

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Government coffers in the Gulf Cooperation Council (GCC) region could face further pressure this year, with the novel coronavirus (Covid-19) outbreak expected to dampen oil demand during the first quarter of 2020.

According to Raghu Mandagolathur, executive vice president of Kuwait Financial Centre (Markaz), a contraction in demand for oil, coupled with the decline in prices, could impact public finances and prompt Gulf states to borrow funds.

A new analysis from the International Energy Agency (IEA) showed that global oil demand is now expected to fall during the first three months of the year - the first quarterly drop in more than a decade - because of the coronavirus.

“Global oil demand has been hit hard by the novel coronavirus and the widespread shutdown of China’s economy,” IEA said on Thursday.

The agency cut its forecast for 2020 by 365,000 barrels per day, a reduction of 30 percent to its earlier forecast in January. 

Mandagolathur noted that the price of oil has already fallen by more than 20 percent since early January on concerns of falling demand following the virus outbreak.

“For GCC countries, it could lead to widening fiscal deficits and the governments may resort to additional borrowing,” Mandagolathur told Zawya. 

“The UAE, being a travel hub, could be further impacted as global trade and tourism slows,” he added.

Some operators in the UAE’s travel and hospitality sectors had earlier expressed concern that the coronavirus outbreak in China could hurt their businesses, as flight restrictions and travel advisories have dampened guest numbers from one of the major source markets of Gulf tourism.

At least 71,000 people globally have so far contracted the virus since the outbreak was reported in December 2019, according to reports. The death toll has now reached 1,775.

(Reporting by Cleofe Maceda; editing by Anoop Menon)

cleofe.Maceda@refnitiv.com

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© ZAWYA 2020

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