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GCC states to continue growth plans despite economic pressures
December 19, 2015, 5:51 pm

Lower oil prices since mid-2014 have begun to impact public spending patterns in the GCC states, nevertheless, a combination of diversification and drawing on financial reserves is expected to allow oil-exporting GCC countries to continue their economic growth plans in the short term say analysts.

Although GCC countries remain better-placed than many parts of the world and can expect continued strong, if slightly slower, growth going into 2016, strong performance down the line will require reconsideration of both public spending priorities and sources of government revenue, as well as a review of existing generous subsidies.

Global economic pressures are also bearing down on the GCC. Although the six-nation bloc can withstand for a while the rising interest rates and other monetary tightening policies in the US, it will in the future have to review its continued currency pegs and low interest rates or risk destabilizing capital outflows.

The slowdown in the Chinese economy at a faster-than-anticipated rate also poses challenges to commodity-exporting GCC nations. In 2013, nearly 12 percent of Middle Eastern exports were sold to China. Although, the Chinese slowdown may have curbed enthusiasm for the eastward focus, the other options of Europe and the USA look equally bleak. For the moment, continuing close ties with the Far East remains the most viable economic growth strategy for GCC states.

A recent report, commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW), projects GDP growth in GCC states as follows:

  • GDP growth in Saudi Arabia over 2016 is expected to reach 2.3 percent thanks to diversification efforts. The Kingdom is taking on numerous measures to adjust its economy in preparation for a prolonged period of lower oil prices, including actively pursuing opportunities to attract higher levels of foreign direct investment.
  • The heavy focus on diversification in the UAE will contribute to strong 3.9 percent GDP growth in 2016. Continued investment in big infrastructure projects should support growth in the face of sustained lower oil prices. Further efforts in non-oil sectors can also be expected given the ambitious target of 80 percent of GDP from non-oil sectors by 2021.
  •  In 2016 Qatar’s economy is expected to grow by 6.8 percent, fuelled by substantial infrastructure investment, including rail network improvements and reservoir construction. Qatar has no plans to scale back on its major programs, with many of the planned construction projects related to the 2022 FIFA World Cup.
  • In Bahrain GDP growth in 2016 is expected to be around 2.8 percent, marginally higher than the 2.6 percent in 2015 but lower than the 4 percent achieved in 2014. With relatively low oil reserves, the change in expectations is partially a result of a worsening outlook for profitability in the banking sector, which remains the country’s main non-oil revenue.
  • Oman’s economy is expected to expand by 3.2 percent in 2016. Thanks to strong historic ties with Iran, the Sultanate should see a boost in form of foreign direct investment and domestic business gaining access to a new market. Infrastructure projects, seen as crucial to diversification efforts, such as the Liwa Plastics plant and national railway expansion, will also provide a source of growth.
  •  Investment in new projects and social areas such as youth development will support 1.9 percent growth in Kuwait in 2016, the lowest among GCC states. However, in the medium and long term the country will have to find ways of addressing the projected fiscal deficits. Given that low oil prices look here to stay, measures such as value added tax (VAT) may become necessary.


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