Saudi Arabia is likely to see economic growth of just 0.5% in 2017 rather than over 1.5% as had been expected at the start of the year.
Saudi Arabia is likely to see economic growth of just 0.5% in 2017 rather than over 1.5% as had been expected at the start of the year.

OPEC Deal to Weigh Heavily on (P)GCC Growth

With the reduction in oil production, estimates for growth across the (P)GCC region this year have been downgraded

OPEC Deal to Weigh Heavily on (P)GCC Growth

OPEC’s decision to extend production cuts agreed in November last year through to the end of March 2018 will have a significant effect on headline growth in the (Persian) Gulf Cooperation Council Arab states.
Despite efforts to diversify economies away from oil in recent years, the oil and gas sector still account for a substantial chunk of economic activity in the six (P)GCC states (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman), news outlets reported.
In the UAE, the most diversified economy in the region after Bahrain, the oil and gas sector accounts for just under a third of the economy, while in Kuwait, it accounts for more than half of its real GDP. So the decision to cut oil production for another nine months will weigh heavily on economic growth, and in some cases outweigh expansion in the non-oil sectors.
As a result, estimates for growth across the region this year have been downgraded. Saudi Arabia, which has cut oil production by more than it committed to in the first half of this year, is now likely to see economic growth of just 0.5% in 2017 rather than over 1.5% as had been expected at the start of the year.
In the UAE, expected growth is at 2% for 2017, down from 3.4% forecast previously. In Kuwait, compliance with OPEC’s target would mean a 5% contraction in the hydrocarbons sector, which could technically push the economy into recession even though we expect the non-oil sector to grow 4% this year.

Businesses Face Challenges
However, these headline growth downgrades mask the improvements seen in the non-oil sectors of the larger (P)GCC economies so far this year. Monthly purchasing mangers’ index survey of around 400 businesses in the non-oil private sectors of the UAE and Saudi Arabia show that output and new orders have been increasing every month.
However, that is not to say that businesses are not facing challenges. Increased competition and a stronger US dollar in recent years have meant that businesses have had to offer promotions and discounted selling prices to secure new work and boost their activity. At the same time, they are facing increased costs for inputs.
This squeeze on margins has meant that many firms are reluctant to increase hiring even though their order books are growing, choosing instead to meet their output commitments with existing resources. They appear to becoming leaner and more efficient. Over the long-term, this is a positive structural change, but in the short term, the lack of job growth means that households are likely to be more conservative when it comes to spending.

Increase in Spending
On a more positive note, the UAE is relatively well placed to weather the current somewhat challenging economic conditions. Unlike other (P)GCC governments that have had to curb spending and investment in the face of lower oil revenues, it is expected the UAE will increase spending (albeit modestly) this year, which should support activity in the non-oil private sector, Arabian Business reported.
In particular, Dubai has allocated additional funds for infrastructure investment in 2017 and this is likely to remain high ahead of Expo 2020.
Overall, the economic outlook for the (P)GCC remains somewhat constructive despite the recent growth downgrades, which have been almost entirely due to the region’s commitments to OPEC to lower oil production this year.

Rising Debt Issuance
Debt issuance from the Middle East surged more than 50% in the first half of 2017 compared to the same period last year with (P)GCC sovereigns and government related entities leading the issuances, according to latest statistics from Thomson Reuters.
The decline in oil prices over the past three years has pushed the (P)GCC countries to raise capital to fund the expected budget deficits in the near term as the surpluses accumulated over the past decade or more could support future deficits for only a limited period of time.
Bolstered by Saudi Arabia’s $9 billion international Islamic bond in April and Kuwait’s $8 billion debut international bond sale in March, Middle Eastern debt issuance reached $57.4 billion during the first half of 2017, 53% more than the proceeds raised during the same period last year and by far the best annual start in the region since records began in 1980.


Short URL : https://goo.gl/derQkd
  1. https://goo.gl/yxccgE
  • https://goo.gl/UxZqPm
  • https://goo.gl/h4tHo7
  • https://goo.gl/4uFiEc
  • https://goo.gl/Xrmfr8

You can also read ...

Profits of Thai Banks Fall
Thailand’s top four banks produced aggregate net profit of 37....
Crisis in Madagascar as Vanilla Price Soars
Vanilla is one of the world’s most popular seasonings and an...
Argentina’s Treasury Minister Nicolas Dujovne (L), accompanied by Argentina’s Central Bank Governor Federico Sturzenegger speak at a news conference after the G20 meeting on Friday.
Finance leaders from the Group of 20 major economies agreed...
Vietnam Still Facing Structural Risks
Despite the generally favorable medium-term outlook, there are...
World Debt Load $164 Trillion : Debt, Protectionism Biggest Threats to Global Growth
The biggest threats to global economic growth are government...
In Emerging, Developing Countries : ILO: Over 700 Million Workers Living in Poverty
There were more than 700 million workers living in poverty in...
Euroland Progress Linked to Global Growth, Open Trade
The eurozone’s economy needs strong global growth and open...
AT&T, Verizon Under Federal Investigation
The US has opened a probe into alleged coordination by AT&...

Add new comment

Read our comment policy before posting your viewpoints