Gulf's GDP growth underpinned by 'resilient' non-oil sector
World Bank report praises diversification efforts but says more needs to be done
Growth across GCC countries slowed this year as oil demand weakened in a more cautious global economy, but most nations saw non-oil gross domestic product steadily increase as diversification efforts continued to bear fruit, according to the World Bank.
The Gulf Economic Monitor published by the World Bank on Thursday said average gross domestic product growth across the GCC dropped to 0.8 per cent in 2019 from 2 per cent a year earlier owing to "muted oil prices and excess oil supply".
"It was the non-oil growth that held up growth in 2019. It was low, 0.8 per cent, but would have been even lower had it not been for a little bit of resilience on the non-oil sector," said Sona Varma, one of the report's lead authors and an economist for Gulf countries at the World Bank.
Economic growth for the Gulf is forecast to recover to 2.2 per cent next year and 2.6 per cent in 2021, but this is conditional on "a gradual recovery in oil prices and continued spending on mega-projects as well as continued growth in non-hydrocarbon sectors", the report said.
Efforts being made to diversify economies across the Gulf are also improving, with countries broadening away from emissions-intensive heavy industries that still depend on fossil fuels to a wider group of industries, with renewables and financial services highlighted as two areas where early success has been achieved.
About $10.1bn (Dh37.09bn) was spent on renewables between 2006-18 in the GCC, and the UAE has led the way with about 70 per cent of installed capacity, the World Bank said.
The "rapid expansion and increasing sophistication of financial services, coupled with high rates of technological adoption and innovation, are driving the creation of a robust financial technology ecosystem and expanding financial access to underserved households", it added.
Although past diversification efforts waned once hydrocarbon revenues improved, since the 2014 drop in oil prices "countries and governments kept going into the plans they had to diversify the economy", Issam Abousleiman, regional director for the GCC countries, told The National.
Future diversification efforts need to be sustainable not only to continue the pursuit of a broader economic base but also to mitigate the risks "that might come from decarbonisation that is taking place around the world", Mr Abousleiman added.
The next phase of reforms need to scale up investments that help to lessen the impact of climate change, align economic growth to environmentally sustainable sectors and focus on "asset diversification" by developing human capital, the World Bank said.
In Saudi Arabia, for example, reforms should "look at the labour market, labour laws and look at different sectors where they can be competitive and start opening up the economy more broadly for investment to start flowing", Mr Abousleiman said.
Although the kingdom has "very good potential" and a reform intensity which saw it move 30 places up the World Bank's Doing Business index this year, "you're still seeing a fair amount of support from the government", Ms Varma said.
"The domestic competition policy, policies for insolvency and other such reforms still need to go further. What we want to see is an environment that really allows for strong, competitive, healthy growth for the private sector," she said.
The report highlighted varying performance between Gulf states, with Bahrain and the UAE expecting the strongest GDP growth this year, at 2 per cent and 1.8 per cent, respectively, while Saudi Arabia and Kuwait are set to grow at 0.4 per cent and growth in Oman will be flat.
Meanwhile, a quarterly report by the UAE's central bank forecast GDP growth of 2.3 per cent in 2019, up from 1.7 per cent last year. Oil GDP growth is set to increase to 4.9 per cent, from 2.8 per cent last year. Non-oil growth is set to edge up to 1.4 per cent, from 1.3 per cent in 2018.
Updated: December 5, 2019 04:32 PM