Higher oil prices coupled with improved global economic conditions are expected to support growth momentum of the GCC countries, said a report by Coface, a global leader in credit insurance providing cover to its clients in more than 200 countries.
The real GDP growth rates in the GCC are expected to hover around 2.3 per cent compared to 0.6 per cent in 2017. However, growth will remain below pre-2014 levels due to volatile energy prices and geopolitical uncertainties, stated Seltem Iyigun, Coface Economist for Middle East & Turkey, during her presentation on “GCC Economic Outlook” at the recent Key Broker Event organised by Coface Credit Insurance GCC at the Grand Sheraton Hotel, Dubai, UAE.
“We see a slight recovery in the growth momentum of GCC nations’ GDP on rising oil prices. The recent extension in oil production cut is a positive sign for oil price outlook in the near term, but prices remain volatile,” remarked Iyigun.
Oil prices have averaged $54 a barrel in 2017, up from $46 in 2016, and is expected to average at $57 in 2018.
In December 2016, 12 Opec countries agreed its first production curbs in a decade. Later, 11 non-Opec producer nations led by Russia, joined the decision. Last November, they decided to extend the oil output cuts until the end of 2018.
Opec produces a third of the world's oil and it pledged to remove 1.8 million barrels per day from global oil production, said the expert.
It is expected that GCC countries will improve their fiscal performances or budget deficits this year. UAE maintained much better fiscal deficit compared to other GCC countries. The UAE was the only country in the region, which maintained its government gross debt during the last couple of years, said Iyigun.
Data from Coface GCC Economic Outlook shows that non-oil real GDP growth of most of the Gulf countries will improve in 2018 compared to 2017 except Bahrain and Saudi Arabia.
Iyigun pointed out that tighter liquidity conditions will remain in the region following the recent US Federal Reserve rate hike because regional currencies are pegged with the US dollar. However, loan growth is not expected in the next three years compared to 2012-2016 period.
According to her, the UAE’s high performing non-oil sectors are expected to drum up growth. The country’s private consumption will likely remain among the main drivers of growth in 2018, sustained by household consumption and higher international tourism.
The country’s domestic appliances, metals, pharmaceuticals will be the fastest growing ones while ICT and machinery the slowest growing ones.
“We believe the UAE is a safe haven despite regional uncertainties and geopolitical situation,” Iyigun said.
While the country’s inflation rate is predicted to be higher than last year (2 in 2017 vs 3.7 in 2018), the recently rolled out Value Added Tax will drive in more government revenues given the UAE’s large consumer base and the importance given on retail spending, especially from foreign visitors.
Iyigun said the construction sector, which is the main pillar of UAE’s economic diversification strategy, recorded remarkable growth at 7.7 per cent year-on-year in the second quarter and 7.5 per cent year-on-year in the third quarter of last year, the fastest growth rates since the financial crisis.
The growth in the construction industry is supported by high investment inflows due to the upcoming Expo 2020. Construction opportunities continue to emerge in the run-up to the international event. According to BMI, 64 per cent of construction are commercial compared to other infrastructure developments.
In terms of economic contribution by output, services sector enjoys the lion’s share of 48 per cent followed by extraction (29.9 per cent), construction (9.4 per cent), manufacturing of intermediate goods (7.9 per cent), then utilities, agriculture and other sectors, according to Oxford Economics findings. UAE food sales are expected to continue the upward journey in 2018.
The petrochemical sector in the UAE will remain stable with the support of non-oil growth. Mining will continue to grow along with construction in this sector, but manufacturing will see some pressure. Export of crude oil and petrochemical products remained stable during the last three years.
Although competition and saturation tighten margins in the UAE ICT sector, consumer electronics maintained demand levels in 2017 and it will continue in 2018, according to BMI data. Key categories handsets, computer hardware and audio-visual sales are expected to go up.
Iyigun forecasts better outlook for the automotive sector in the UAE.
The emirates' vehicles sales witnessed a sharp increase in 2017 and the trend will continue in 2018. The demand for passengers’ vehicles as well as light commercial vehicles will rise in 2018," she added, citing industry sources.