High oil prices, strong Covid-19 response aid GCC recovery in 2021, says World Bank

Governments told to reduce their role in economic management

Waheed Abbas

Published: Sun 5 Dec 2021, 3:56 PM

The Gulf Cooperation Council (GCC) economies are expected to return to an aggregate growth rate of 2.6 per cent in 2021 amid high oil prices and strong responses to Covid-19.

According to the latest World Bank report on the region, the outlook for the GCC economies appears far rosier now than it did even 6 months ago. “As the world emerges from the pandemic, GCC countries are growing once again. GDP has gone from a decrease of 4.9 per cent in 2020 to an increase of 2.6 per cent in 2021 on the back of higher oil prices which have more than doubled since October 2020.”

It said their robust recovery, which is due to stronger oil prices and the growth of non-oil sectors, will accelerate into 2022 as Opec+-mandated oil production cuts are phased out and higher oil prices improve business sentiment and attract additional investment.

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Crude prices on Friday climbed over $2 per barrel after Opec+ said it could review its policy to hike output at short notice if a rising number of pandemic lockdowns chokes off demand. Brent was trading at $69.88 a barrel on Sunday.

JP Morgan Global Equity Research has projected that crude price will overshoot $125 a barrel next year and $150 in 2023 due to capacity-led shortfalls in Opec+ production.

The bounce-back has been credited to excellent macroeconomic and pandemic management measures implemented in 2020 and 2021. “GCC countries put in place a myriad of support measures for businesses and employees during the worst of the pandemic and were among the first in the world to vaccinate their populations with UAE leading the world with all the eligible people receiving one dose of the vaccine while some vulnerable groups even receiving a third booster shot.

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Overall the non-oil economy is projected to outperform the oil economy in 2021. Tourism is bouncing back rapidly as restrictions on travel are being eased both in the GCC and around the world, providing a boost particularly to Oman, UAE and Bahrain, it said.

World Bank also issued a word of caution for the regional government, saying the GCC governments should continue to follow the path of prudent macroeconomic management to consolidate their fiscal balances and reduce the role of the state in economic management.

“UAE’s government-related entities especially those in the construction sector deserve a careful review to ensure that their borrowing remains sustainable and to adjust to the new conditions.

-waheedabbas@khaleejtimes.com