Economic activity in the Middle East and North Africa showed surprising resilience in 2016 despite mounting political and economic headwinds in the region, says a report.
According to the latest Focus Economics Consensus forecast, the region’s aggregate gross domestic product expanded 2.7% in 2016, up from 2015’s 2.6% due to diverging economic trends within the Mena, Albawaba reported.
“The region greatly benefited from Iran’s reintegration into the global economy and its consequent surge in oil shipments. The country is projected to expand at the fastest pace in six years in the Iranian fiscal year that ends in March,” according to the report.
Another positive note for 2016 was Iraq’s economic rebound following 2015’s dismal performance. Accommodative monetary policies and improving external positions due to low oil prices prompted growth in most of the region’s net oil importers to accelerate this year.
The report noted that (Persian) Gulf Cooperation Council countries (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) felt the brunt of the pain in 2016. The low oil price environment since mid-2015 forced (P)GCC countries to implement harsh austerity measures in order to rein in their soaring budget deficits.
“Lower subsidies and a sizeable reduction in government expenditures, particularly in infrastructure, took their toll on non-oil activities. As a result, growth in (P)GCC countries fell from 3.8% in 2015 to 1.9% in 2016, the weakest performance since the global financial crisis in 2009,” says the report.
About the UAE economy, the report said the country is expected to achieve 3.2% GDP growth in 2018 compared to 2.6% this year.
Oil Factor
“Reduced government spending will continue to constrain the economy in 2017, albeit to a lesser extent thanks to the recovery in the oil market. The non-oil sector will continue to sustain growth, though not at its full potential due to weak regional and global demand,” according to the report.
Oil is predicted to be in the range $50-$60 this year, but it would not be a surprise if crude reaches $70.
The UAE economy switched into lower gear in 2016 as austerity measures, weak growth among key trading partners and low oil prices continued to dampen economic activity. PMI data for 2016 showed that, despite remaining in positive territory, the index was well below the average of the previous year, suggesting a slowdown in non-hydrocarbon activities.
On the upside, infrastructure investment continued to sustain the relatively diversified economy and greater oil production helped to cushion the fall in oil prices. Abu Dhabi National Oil Company aims to more than double petrol and petrochemical production under a five-year plan announced last year.
As for Saudi Arabia, the report said the kingdom is expected to perform below par, with an expansion rate of less than 1%.
On the rest of the major economies in the region, Egypt and Qatar will likely grow the fastest, with projected expansions of 3.4%. Kuwait is expected to strike 1.8% and 2.6% growth in 2017 and 2018, respectively.
As regards the Oman economy, the report said its economic outlook still looks disappointing after a grim 2016 as spending cuts and delays in the implementation of infrastructure development projects will hurt overall growth. The sultanate may achieve 1.5% growth this year that will accelerate to 2.3% in 2018.
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