The GCC non-oil sector is seeing strong growth despite production cuts

According to the Institute of Chartered Accountants in England and Wales (ICAEW), the non-oil sector will remain the main driver of growth in the GCC in 2024 and beyond, as regional countries’ fiscal positions are expected to weaken as OPEC+ cuts oil production in June.

GDP growth in the oil-rich GCC is expected to slow to 2.2% in 2024 from 2.7% three months ago, although non-energy sectors remain resilient.

ICAEW forecast that Saudi Arabia, Bahrain and Kuwait will record budget deficits this year and in 2025 as the current level of oil prices is below the fiscal break-even level.

“OPEC+’s extension of voluntary production cuts until the third quarter of 2024 implies a delayed recovery in the GCC’s energy sectors,” the accounting body said in a report by Oxford Economics.

Oil production in the region is expected to decline by 2.6% in 2024, instead of the 1.3% increase predicted three months ago. The report shows that Saudi Arabia’s oil production will fall by 5 percent this year, compared with a projected increase of 0.7 percent three months ago.

However, the GCC’s overall fiscal position is expected to remain somewhat in surplus this year, supported by its solid financial position and favorable credit ratings, which will enable continued access to financing from capital markets and initial public offerings.

GCC GDP growth in 2024

ICAEW projected Qatar’s economy to grow by 2.2% in 2024 and increase to 2.9% in 2025. Given that Qatar is not committed to OPEC+ production quotas, the Gulf state’s gas sector is a priority , and authorities will redouble efforts North Field Gas Expansion Project, promising positive impact in the medium term.

On the other hand, Bahrain continues to diversify its economy and reduce its dependence on oil revenues. The kingdom’s non-oil sector grew by 3.4% in 2023, accounting for almost 84%. its GDP.

“Bahrain has also seen a significant increase in investment following the launch of its Gold License initiative in April 2023, which requires a minimum investment of $50 million and the creation of at least 500 jobs,” said Scott Livermore, economic advisor to ICAEW and chief economist and managing director of Oxford Economics Middle East.

“Bahrain’s financial services sector generated almost 18 percent of GDP, surpassing oil which generated 16 percent.”

Saudi Arabia’s non-oil sector will receive a boost from investment in critical sectors supporting mega projects including construction, manufacturing and transport. The Arab world’s largest economy is expected to record strong growth in the hospitality sector as tourism is expected to remain a key part of the country’s economic growth agenda.

Tourism is also a strategic sector in other GCC countries and will remain a key growth factor. Tourism activity has increased significantly and the record number of visitors to the GCC in 2023 will continue this year.

The GCC inflation forecast for 2024 was lowered by 0.3 points. percent up to 2.2 percent in 2024, with a further slowdown expected to 2.1%. next year. Excluding house rents in some countries, inflationary pressures remain limited with interest rates below 2%.

Read: Saudi Arabia records SAR 12.4 billion budget deficit in Q1 2024