The most recent analysis of the Middle East’s economic climate anticipates a deceleration in the GCC’s growth pace to 2.7 percent for the current year, a reduction from the previously estimated 3.9 percent. This shift is primarily attributed to ongoing reductions in oil output.
Nonetheless, the analysis suggests that the non-energy sectors are poised to propel the economies of Saudi Arabia and the UAE forward in 2024.
Despite the energy sector exerting downward pressure on GCC economic growth, robust non-energy performance is expected to offset some of the impact,
according to the study conducted by ICAEW and Oxford Economics.
Nevertheless, it has been noted that disruptions in key maritime corridors such as the Red Sea and Suez Canal have escalated the costs of freight and raw materials, which might hamper economic momentum in the forthcoming months.
Revisions to the GDP growth forecasts for Saudi Arabia and the UAE have placed them at 2.1 percent and 4.4 percent, respectively, a decrease from earlier projections of 4.4 percent and 4.8 percent.
These adjustments are reflective of a buoyant non-oil economy and the anticipated relaxation of oil production restrictions starting in the third quarter.
Recent indicators for the fourth quarter of 2023 show a 3.7 percent year-on-year decline in Saudi Arabia’s GDP, succeeding a 4.4 percent downturn in the previous quarter. In contrast, the UAE’s non-oil GDP is thought to have swelled by 5.6 percent in 2023, culminating in an overall GDP growth of 3 percent.
Last year’s significant reduction in GCC oil output, which was due to enforced production cutbacks, has set a low benchmark for comparison.
Despite the OPEC+ coalition’s voluntary prolongation of production cuts into the second quarter, the regional energy sector is anticipated to experience growth this year.
The energy sectors are forecasted to collectively expand by 1.3 percent, marking a significant recovery from the prior year’s 5.7 percent contraction.
In Saudi Arabia, oil-related activities are predicted to see a 0.7 percent increase this year after a 9.5 percent year-on-year decrease in 2023.
The non-energy sectors within the GCC are expected to continue thriving, supported by government and private investments. Saudi Arabia, for instance, is advancing its Vision 2030 by funneling funds into large-scale projects and setting sights on Expo 2030 and the FIFA World Cup 2034.
Similarly, the UAE is projected to witness robust investment activity as it moves forward with its ‘We the UAE 2031’ vision and the Dubai Economic Agenda D33, among other initiatives.
Qatar’s strategy to expand its LNG capacity later in the decade is also anticipated to yield positive outcomes in the medium term.
Hanadi Khalife, Head of Middle East at ICAEW, commented, Despite the GCC economic outlook facing mounting headwinds from the war in Gaza and disruptions in Red Sea trade, we are encouraged by the resilience of non-energy sectors to drive recovery.
The steadfast dedication of the UAE and Saudi Arabia to diversify their economies away from oil and achieve their ambitious vision targets is a testament to their pragmatic and fiscally responsible strategies.
Khalife further elaborated on initiatives such as Saudi Arabia’s international bond sales to address fiscal deficits and the UAE’s removal from the Financial Action Task Force (FATF) grey list, which are expected to bolster the countries’ reputations and attract more foreign direct investment.
The analysis also projects that GCC inflation will stabilize around 2.5 percent, primarily influenced by housing expenses.