Public spending and measures to stimulate the private sector will drive growth in GCC countries to 2.6% in 2020, according to a report.
The National Bank of Kuwait’s (NBK) MENA Outlook Report said growth would slip slightly this year to 2.3%, down on 2.4% in 2018.
The report said public spending and private sector stimulus would help countries to shrug off soft oil prices.
“Regional governments will continue with their ambitious infrastructure and development projects, backed by expansive public spending plans, with Saudi Arabia’s record SR1.1 trillion ($293bn) budget the most eye-catching,” said the report.
It added: “The outlook for oil prices has changed considerably over the last six months, with the balance of risks in 2019-20 skewed to the downside.”
GCC oil producers, with the probable exception of Qatar, are likely to face delays in the process of fiscal balancing due to softer oil prices and production cuts. This will pressure non-oil sectors to drive revenue growth and real output gains.
Following its withdrawal last December from OPEC, which frees it from production cut obligations, it was on track in 2018 to record a first surplus in three years.
Private sector stimulus programmes and productive infrastructure investments are expected to support non-oil growth over the forecast period.
The region has also seen reforms to stimulate the business environment and incentives to attract long-term foreign investment.
This is especially true of the UAE, which reduced fees in several sectors including real estate and tourism in Dubai, and offered mainland licenses for businesses operating in free trade zones in Abu Dhabi.
It also approved the issuing of residency visas to skilled expatriates for up to 10 years and raised foreign ownership limits of companies operating outside of free trade zones to 100%, from 49%.
NBK estimates GCC governments’ oil and gas expansion plans will continue despite production cut obligations and the prospect of lower oil prices.
The UAE is set to meet oil production capacity targets, having identified close to $145bn of new upstream and downstream investments over the next five years.
Qatar and Bahrain have commenced projects to increase their oil and gas output, with Bahrain discovering sizeable offshore tight oil and gas deposits and Qatar after deciding to expand LNG production capacity by 43%.
The introduction of VAT in the UAE and Saudi Arabia in 2018 was the main cause of rising prices in those countries, but its effects have worn off. Inflation should rise by no more than 2% by 2020, said the report.
Egypt, meanwhile, has seen economic growth reaching 5.3% in 2017-18, supported by IMF funds and associated fiscal reform measures.
“Tourism and exports are recovering, helped in part by a cheaper currency, remittances have increased substantially, and unemployment has begun to fall,” said NBK.
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