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GCC GDP growth to soar next year

Dubai - UAE to lead uneven GCC economic growth in 2022

The GCC countries’ GDP growth will more than double next year as higher oil income after the surge in crude prices will result in a rise in budget spending and propel the diversification of the regional economies, say economists.

The UAE will lead the region’s uneven economic recovery, thanks to its proactive approach to attracting global talent.

Maya Senussi, senior economist at Oxford Economics, said the outlook for the GCC region has improved over the past few months, with economies benefitting from domestic and global reopening.

“We expect this positive momentum to carry into 2022 as countries raise oil output. However, the bloc will continue to lag other emerging market regions in regaining pre-pandemic activity levels, which will not be reached until the first quarter of 2022. Our forecasts show regional growth accelerating from 2.2 per cent this year to 5.1 per cent in 2022, the strongest pace in a decade,” Senussi said.

In July, the Opec+ group agreed to lift output by 400,000 barrels per day a month into next year, gradually unwinding cuts from 2020. It also settled on adjusting baseline production levels for many countries, including Kuwait, Saudi Arabia, and the UAE, beginning May 2022.

“Although we expect a slower-than-agreed pace of monthly increases next year, we have nudged up our oil growth forecast for the region to 6.7 per cent for 2022, from 3.8 per cent three months ago,” says Oxford Economics.

Oil prices have almost doubled in the past year with Brent rising from $39.27 per gram on October 2, 2020, to $78.2 on October 1, 2021.

“The oil sector should remain an important driver of growth beyond next year as producers expand capacity. Higher oil revenue will allow several governments to close budget gaps and build up financial resources while providing an opportunity to advance growth and diversification agendas. Although we expect spending growth to be modest in 2022, it will support non-oil activity, which we see accelerating to 3.9 per cent, from an estimated 3.1 per cent in 2021,” he said.

UAE to lead uneven GCC recovery

Senussi predicted that the recovery will remain uneven across countries given divergent growth strategies.

“The UAE’s proactive approach to attracting global investment and talent, along with greater budget headroom, means it will outperform regional peers. Meanwhile, Kuwait and Oman, where workforce nationalisation policies are driving away talent, face the prospect of a longer, more protracted recovery,” he added.

Simon Ballard, chief economist at First Abu Dhabi Bank (FAB), the GCC region in 2021 is tracking global reflation, but myriad challenges remain. “The path to recovery is anything but smooth.”

Ballard forecast that the UAE’s economy to expand 2.4 per cent in 2021, a rebound from last year’s 6.1 per cent contraction. While Saudi Arabia should also grow by a similar rate this year.

No immediate funding concerns

Senussi noted that the rise in the oil price this year has alleviated immediate funding concerns, and given its reliance on commodity external borrowing needs have declined.

“However, fiscal vulnerabilities remain high in Bahrain and Kuwait in particular, two of the three countries with wide double-digit budget gaps in 2020. The third being Oman, which is implementing a medium-term fiscal plan.”

The near-term outlook for the GCC is brighter but headwinds remain.

“The US dollar pegs mean the region will have to follow the Federal Reserve timeline in raising rates even if inflation remains low. That could weigh on credit growth recovery, partly offsetting the benefits of the more accommodative fiscal policy stance,” it said.

— waheedabbas@khaleejtimes.com