Non-oil sector to drive GCC growth to offset impact of oil production cuts – News

Prolonged production cuts mean delayed recovery in GCC energy sectors

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View of the Marina beach in Dubai. – AFP file

The GCC non-oil sector will remain the region’s main growth driver in 2024 and beyond, while overall GDP is expected to decline to 2.2% due to an expected decline in oil production as OPEC+ extends voluntary production cuts until Q3 according to the Institute of Chartered Accountants in England and Wales (ICAEW).

An Economic Insight report commissioned by ICAEW and produced by Oxford Economics said extended production cuts will mean a delayed recovery in the GCC’s energy sectors as oil production will fall by 2.6 percent this year instead of the 1.3 percent increase predicted three months ago. .

The GCC growth forecast was revised down to 2.2 percent from 2.7 percent three months ago, although non-energy sectors including Bahrain and Qatar remain resilient.

However, the World Bank has revised its economic outlook for the GCC region, reflecting a brighter future but a slightly slower present.

In its Spring 2024 Gulf Economic Update, the bank projects regional growth to be 4.7% in 2025, a significant upward revision from its previous projection of 3.8%.

It expects the UAE economy to grow by 3.9 percent in 2024 on the back of higher oil production. The World Bank expects oil production growth to reach 5.8% in 2024. Meanwhile, non-oil production will remain high and increase to 3.2%. Accordingly, the UAE has shown good performance in the tourism, real estate, construction, transport and manufacturing sectors.

The World Bank said this year’s growth is expected to be slightly lower than earlier estimates. While the original forecast was for a 3.6 percent expansion, the revised figure is 2.8 percent. Despite this correction, the Washington-based institution maintains a positive outlook. The expected rebound in oil production, combined with the continued strength of the non-oil economy, is fueling optimism about the region’s future.

The ICAEW report shows that in Saudi Arabia, which is cutting production the most, oil production will fall by 5.0% this year, compared with an expected increase of 0.7%. However, as voluntary production cuts are reversed in 2025, energy sectors will begin to make a positive contribution to GCC growth.

The accounting body said Saudi Arabia, Bahrain and Kuwait will record budget deficits this year and in 2025 because the current level of oil prices is below the fiscal break-even point.

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.

The report predicted that Qatar’s economy would grow by 2.2 percent. in 2024 and will increase to 2.9%. in 2025. Given that Qatar is not committed to OPEC+ production quotas, its gas sector is a priority, and authorities will redouble efforts in the north Natural gas expansion project promising positive medium-term impact. 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 an investment of at least $50 million and the creation of at least 500 jobs,” said Scott Livermore, economic advisor to ICAEW and chief economist and managing director Oxford Economics Middle East.

He added that Bahrain’s financial services sector accounts for almost 18%. GDP, surpassing the oil sector, which accounts for 16%.

Saudi Arabia’s non-oil sector is set to receive a boost from investments in key sectors supporting giga-projects, including construction, manufacturing and transport. The Arab world’s largest economy is expected to see strong growth in the hospitality sector as tourism is expected to remain key to the country’s growth agenda.

Tourism is also a strategic sector in other GCC countries and will remain a key growth driver. Tourism activity has rebounded strongly, with record visitor numbers in the GCC in 2023 continuing into 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 rates below 2.0%.