MUSCAT, JULY 21 - The Middle Eastern economy is expected to slow down from an estimated 1.5 per cent last year to about 0.6 per cent in 2019, the slowest in almost a decade. According to ICAEW’s latest Economic Insight report, the Middle East GDP growth forecast slowdown is primarily driven by a deeper-than-expected recession in Iran, one of the region’s largest economies. In the GCC, the burden of generating economic growth and employment is expected to fall more on the non-oil sector in 2019. Lower oil prices pose a challenge for a number of GCC countries that rely heavily on hydrocarbon receipts to balance their budgets.
Economic Insight: Middle East Q2 2019, produced in partnership by ICAEW and Oxford Economics, says the downward revision to Middle East GDP growth is because the Iranian economy is expected to contract by 7 per cent in 2019. Weighed down by tougher American sanctions and the US administration’s recent decision to stop granting waivers to Iran’s oil import partners, which took effect earlier in May this year, Iran’s economic outlook is now particularly dire.
According to the report, oil producers in the Middle East will also see limited growth in the oil sector, the traditional engine of economic growth and a primary source of government revenues, given the anticipated extension of the output cuts by Opec+ to balance the international oil markets. Oil prices are forecast to average around $67pb in 2019, down by some 5.6 per cent from the average of $71pb last year.
2019 in both Saudi Arabia and the UAE compared to Q4 2018.
Michael Armstrong (pictured), ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “The outlook for Middle Eastern economies remains challenging for the rest of 2019 as global developments continue to be of crucial importance to the region. Growth prospects for the Middle Eastern economy have deteriorated as geopolitical risks, involving Iran especially, have risen in the last year. Continued uncertainty in the global oil market means increasing non-oil revenues is vital for regional economies — governments in the region have been proactive, but they must continue to support their economies with pro-growth initiatives.”
Both domestic demand and the external sector face persistent headwinds, the latter reinforced by the fractious US-China trade relations. Renewed pressure on oil prices complicates fiscal adjustment, as the overall thrust of policy remains expansionary. Additionally, the ramp-up in gas output over the past 18 months has partly compensated for lower oil production, cushioning oil sector performance.
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