ICAEW/Oxford Economics’ reports says higher oil prices, government spending will spur GDP expansion
Middle East GDP to grow 2.9% in 2018, recover from 8-year low
The Middle East is expected to grow by 2.9 per cent in 2018, recovering from an eight-year low of economic expansion recorded in 2017, thanks to higher oil prices, expansionary budgets and an improving security situation, according to a new report.
The region, which grew 1.1 per cent last year, is forecast to expand further to 3.6 per cent in 2019, according to forecasts in the ICAEW/Oxford Economics’ Economic Insight Middle East Q1 2018. Growth in the Arabian Gulf will accelerate to 2.4 per cent in 2018 and 3.5 per cent in 2019, compared with 0.1 per cent last year, the report said.
“What is reflecting our more positive outlook for this year is that the GCC governments, all of them announced expansionary fiscal policies,” said Mohamed Bardastani, an ICAEW economic adviser and senior economist for Middle East at Oxford Economics. “We see it [government spending] rising by an average of 5 per cent for all of the GCC.”
Arabian Gulf countries are benefiting from a recovery in oil prices which touched $70 a barrel earlier this year, nearly twice the troughs of less than $30 a barrel reached in 2016. The Gulf governments, which tightened their purse strings in the last two years, are boosting spending to kick start economic growth, hurt by austerity measures.
Saudi Arabia, the world’s biggest oil exporter and the region’s largest economy, last year revealed a record expansionary budget for 2018, allocating 200 billion Saudi riyals to a four-year stimulus programme and approving bonuses for public sector employees - measures aimed at accelerating growth.
Steps such as these will help the kingdom achieve a 2 per cent growth this year, compared to a 0.7 per cent contraction last year, Mr Bardastani said. In January, the IMF revised up its projections for the kingdom where it expects the economy to expand by 1.6 per cent in 2018 and 2.2 in 2019 - 0.5 and 0.6 percentage points higher respectively than its October forecast.
“We are more bullish than the IMF because of the government initiatives: you have private sector stimulus, you have increased government spending, you also have some allowances and financial packages by the government to mitigate further rising living costs,” said Mr Bardastani.
In the UAE, growth is forecast to reach 2.6 per cent this year and 4.1 per cent next year, compared with 1.7 per cent in 2017.
Rising oil prices and higher government spending in the UAE, particularly in Dubai will buoy growth. Dubai announced its biggest ever budget for 2018 as the emirate ramps up infrastructure spending to finance Expo 2020-related projects, with expenditure rising 19.5 per cent from 2017.
Dubai’s economic growth is forecast to accelerate to 3.7 per cent in 2019 as infrastructure development and diversification policies continue apace, said Sheikh Hamdan bin Mohammed, Crown Prince of Dubai in December.
Real GDP, which grew 2.8 per cent in 2016, is projected to grow 3.5 per cent in 2018.
“For 2019, we see a substantial pickup [in UAE growth] and this reflects again continued government spending but the key thing here that is going to feed into higher growth is we are assuming the normalisation of oil output,” said Mr Bardastani.
UAE, as an Opec member, has been curbing its oil production in compliance with a global oil deal between the organisation and a group of countries led by Russia since the pact took effect in January last year. The agreement has been extended till the end of 2018 and is expected to wind down in 2019.