The GDP of the GCC is expected to grow from just 0.3 per cent in 2017 to 2.8 per cent next year, while the same in the wider Middle East will accelerate from 1.4 per cent in 2017 to 3.2 per cent next year, a report said.
Several economies in the Middle East, particularly those in the GCC, are transitioning towards a “new normal” in 2018, allowing spending to start gradually recovering, added the “Economic Insight: Middle East Q4 2017” from ICAEW, a world leading professional membership organisation.
However, the accountancy and finance body says several risks remain to growth in the region, including those from politics and security.
The report, produced by Oxford Economics, ICAEW’s partner and economic forecaster, says public finances now look to be on a more sustainable path in most economies in the GCC thanks to three main factors: the upcoming Value-Added Tax; the important social change in Saudi Arabia with the lifting of the ban on women driving; and as a result of a period of emergency austerity which saw public spending cut by almost 20 per cent from 2015-2017 at the GCC level.
With Opec-plus oil production cuts likely to be maintained through 2018, and reversed in 2019, GDP growth is expected to pick up to around 4 per cent in both the GCC and wider Middle East in 2019. Within this, GCC oil GDP is forecast to rebound from a 2.3 per cent contraction in 2017 to growth of 1.7 per cent in 2018 and around 1 percentage point stronger in 2019. Growth in the GCC non-oil sector is forecast to pick up from 2.4 per cent in 2017 to 3.7 per cent in 2018 and 4.7 per cent the year after.
Tom Rogers, ICAEW economic advisor and associate director of Oxford Economics, said: “Economic growth prospects of the Middle East countries, particularly the GCC, are projected to improve in 2018 and the years after. But the political and security risks remain high and could limit or delay the recovery in the region.”
Next year will be a key year of transition for Saudi Arabia in several contexts. For the first time, Saudi citizens will pay VAT on the goods and services they buy, Saudi women will be permitted to drive, and private (and foreign) investors may be able to take a stake in Saudi Aramco. The kingdom is at the start of a potentially decades-long process of economic diversification and social change.
Additionally, the expected increase of Brent crude to an average of $55 in 2018 and a dollar or two higher the following year, will offer some support to public spending and growth. Private bank deposits have also started to recover through the summer months, providing some support for spending power into 2018. More positively, plans to permit women to drive could save some households as much as $1,000 per month – particularly where women use a driver or taxis to get to their workplaces.
However, the relaxation on women driving seems unlikely to have an immediate impact on female employment.
The Saudi Arabia economy is expected to pick up from a 0.3 per cent contraction in 2017 to record growth of 2.3 per cent in 2018. As oil output is restored to pre-cut levels in 2019, GDP is expected to grow 3.8 per cent.
