Economic growth in the Middle East is “to accelerate” by the second half of the year as pandemic restrictions ease, according to research.
A report from finance professional body ICAEW forecast that despite a slow economic start to the year due to measures to control Covid, the rollout of vaccines should allow a return to relative normality in the second half, thanks to higher commodity prices and stronger external demand.
According to a quarterly forecast, GDP will be 2.5% for the year, similar to the average growth of 2.6% seen between 2010 and 2019. This will follow unprecedented decline, estimated at 5.2% in 2020, the report added.
However, ICAEW said it “remained cautious” in its forecast for recovery in the GCC region, predicting GDP growth of 1.6% this year, after the 5.4% contraction of 2020.
The report noted the ongoing drag on growth from the oil production cutbacks, and that pandemic-related restrictions in the GCC had been tightened to suppress a recent rise in new infections. It added the vaccine rollout had been uneven but was progressing particularly well in the UAE and Bahrain.
ICAEW said expectations of strengthening activity and rising demand had lifted sentiment, pushing oil prices up to $66 per barrel in late February (up from a low point of $9 in April 2020). The report forecast the price of Brent crude at $62 in 2021.
However, the upside for oil prices through 2022 and 2023 is limited, the report concluded, and they are much lower than GCC countries have traditionally seen.
Inflation concerns have re-emerged in the GCC, following rising global food, shipping and energy prices, although some of this is being offset by declines in housing and recreation prices.
Regional inflation will be an average of 2.5% this year, higher than in 2019-20 but manageable, the report said.
The rest of the region also faces challenges including oil production cuts, virus-related lockdowns and, for Iran, US sanctions. The report noted a potential lifting of sanctions under US president Joe Biden could provide a meaningful boost to Iran’s oil economy and budget and help to cool double-digit inflation.
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