Qatar’s non-energy sector remains resilient; GDP growth could rise to 2.9% in 2025: ICAEW

According to the Institute of Chartered Accountants in England and Wales (ICAEW), Qatar’s GDP growth forecast for this year is 2.2% and is expected to increase to 2.9% in 2025. The latest Economic Insight report for the Middle East East, commissioned by ICAEW and produced by Oxford Economics, predicts a slow recovery in the GCC region this year due to increased oil production restrictions. The GCC growth forecast was revised down to 2.2% from 2.7% three months ago, although this does not apply to energy. Sectors including Qatar and Bahrain were said to remain resilient. The OPEC+ group’s extension of voluntary production cuts until the third quarter means a delayed recovery in the GCC energy sectors. ICAEW noted that GCC oil production will contract by 2.6% this year instead of the 1.3% growth predicted three months ago. In Saudi Arabia, which is cutting production the most, oil production will fall by 5% this year, compared with a projected increase of 0.7% three months ago. However, as voluntary production cuts are reversed in 2025, energy sectors will begin to make a positive contribution to GCC growth. Bahrain’s GDP growth is expected to be 3.1% this year, but is expected to decline to 1.4% in 2025, “As Qatar is not committed to OPEC+ production quotas, its gas sector is a priority and authorities will redouble efforts to under the North Field gas expansion project, which promises positive impacts in the medium term,” ICAEW said. On the other hand, Bahrain continues to diversify its economy and reduce its dependence on oil revenues Last year, economic growth in the non-oil sector increased by 3.4%, accounting for almost 84% of GDP. High-frequency data presents a positive outlook for non-energy sectors across the GCC. Investments are expected to increase in Saudi Arabia. inflow to key sectors supporting gigaprojects, including construction, manufacturing and transport. Strong growth in the sports and entertainment sector will also be seen as the country’s transformation continues. The hospitality sector is likely to follow suit, with tourism remaining a key part of Saudi Arabia’s growth program. Tourism is a strategic sector in other countries as well and will remain a key growth factor. Tourism activities have increased significantly and the record number of visitors to the GCC in 2023 will continue this year. According to ICAEW, non-oil economies will continue to grow despite the GCC’s deteriorating fiscal situation. Saudi Arabia, Bahrain and Kuwait are likely to record budget deficits this year and next as current oil price levels are below the fiscal break-even point. “However, the GCC’s overall fiscal position is likely to remain surplus, supported by its strong financial position and favorable credit ratings, enabling continued access to financing from capital markets and public offerings,” ICAEW noted. Hanadi Khalife, head of ICAEW for the Middle East, said: “While geopolitical risks pose a headwind for the GCC and the wider Middle East, we welcome the continued commitment to diversification and sustainable development goals.” For example, Qatar became the first GCC country to issue green bonds despite having no explicit commitment to net zero emissions. Bahrain is also aligning its non-oil economic growth with its commitments under Economic Vision 2030 and COP28 to reduce greenhouse gas emissions by 30% by 2035.” Scott Livermore, economic advisor to ICAEW and chief economist and managing director of Oxford Economics Middle East, said: “While the region faces increasing pressure in the face of a slowing global economy, the GCC remains relatively positive thanks to strong agreements bilateral and investments. Qatar recently signed a 20-year supply contract with India for 7.5 million tons of liquefied natural gas per year, and a 27-year contract with Taiwan for 4 million tons. Bahrain also saw a significant increase in investment following the launch of its Golden License initiative in April 2023, which requires a minimum investment of $50 million and the creation of at least 500 jobs. Bahrain’s financial services sector generated almost 18% of GDP, surpassing oil which generated 16%. The GCC inflation forecast for 2024 was lowered by 0.3 percentage points to 2.2% this year, and is expected to slow further to 2.1% next year. Excluding apartment rents in some countries, notably Saudi Arabia, inflationary pressures remain subdued, with rates below 2% in all GCC countries except Kuwait and the United Arab Emirates. Given the stable exchange rate against the US dollar, GCC central banks tend to track US federal policy The Federal Reserve’s policy rates. The US Federal Reserve is expected to start gradually reducing policy interest rates in September, by a total of 150 basis points by the end of 2025, ICAEW added.