GCC heads into 2022 on a firmer footing
Positive trend: Economy has likely regained pre-pandemic level
Published: 03:12 PM,Dec 14,2021 | EDITED : 10:12 AM,Dec 15,2021
The Middle East economy looks to have recovered pandemic-related losses earlier than expected, thanks to higher oil output and almost complete lifting of health restrictions in some countries, according to the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics.
“We believe progress will continue over the coming year,” said the report. “New Covid-19 outbreaks remain a risk to the outlook for the region and globally, as the emergence of the Omicron variant highlights. However, comparatively high vaccine coverage, especially across the Gulf, should limit the need for tight control measures. Provided the Omicron variant does not prove too disruptive, we expect Middle East GDP to accelerate to 4.4 per cent in 2022, after an estimated expansion of 3 per cent this year (up from 2.6 per cent three months ago).”
Activity appears to be rebounding strongly across the GCC, driven largely by higher oil output and spending on services as health restrictions ease. With business optimism continuing to rise, the report’s analysts remain upbeat about the outlook heading into 2022. GCC GDP is expected to return to pre-crisis levels in Q1 2022, with GDP growth seen accelerating from 2.7 per cent this year (0.5pp higher than we projected three months ago), to 5.0 per cent in 2022.
According to the report, the recovery will continue to follow a mixed pattern given divergent growth strategies and different policy space. The UAE’s proactive approach to attracting global investment and talent, along with greater budget headroom, means it will outperform regional peers. Meanwhile, Kuwait and the Sultanate of Oman face the prospect of a longer, more protracted recovery.
The oil sector is already benefitting from higher production quotas and will be critical to boosting regional GDP growth in 2022. It should also remain an important driver of growth beyond next year as producers expand capacity, the report points out.
Meanwhile, regional PMIs show strengthening growth momentum in the non-oil sector, with output and employment on an upward trend. Although the pandemic is not over in the GCC, high vaccination uptake has helped regional countries avoid a Delta wave. The remaining domestic Covid-19 restrictions are mostly related to mask wearing, PCR testing and ongoing social distancing.
“Low infection rates and less disruptive Covid measures have allowed mobility levels and domestic activity to return close to normal, helping fuel the economic recovery, with equity prices rising strongly. And while virus headwinds remain, our forecasts for the GCC show non-oil growth of 3.3 per cent in 2022, after estimated expansion of 3.8 per cent this year,” the report noted.
Tourists are returning to the region after borders have re-opened, aiding the recovery of the hospitality sector, with Dubai in particular witnessing a significant bounce due to the start of the delayed Expo 2020. However, the rebound may suffer in the near-term as health situation fluctuates around the world.
The price of Brent oil has eased below $80 per barrel as high Covid-19 numbers in Europe and new restrictions raised concerns about demand, but it remains significantly higher than this time last year. The Opec+ group has so far stuck to plans of steadily increasing oil output, but could adjust policy if the Omicron variant weighs on demand. The oil market is expected to swing into oversupply soon and prices should continue to trend lower as a result. Brent is projected to average $72.5pb next year, slightly higher than this year, but reaching $68pb by the end of 2022.
Higher energy prices have bolstered Gulf governments’ finances as oil revenues remain dominant in the region’s budget revenue structures. Recent data show Saudi Arabia’s budget swung back to surplus in Q3 after more than two years in the red. In Qatar and the UAE, data already showed surpluses in H1, while elsewhere in the region deficits are shrinking. But uncertainty over revenue remains and the budgetary plans for 2022 and beyond unveiled by some GCC governments point to continued fiscal restraint. Consequently, the report’s forecasts show an overall GCC budget surplus next year for the first time since 2014.
“We believe progress will continue over the coming year,” said the report. “New Covid-19 outbreaks remain a risk to the outlook for the region and globally, as the emergence of the Omicron variant highlights. However, comparatively high vaccine coverage, especially across the Gulf, should limit the need for tight control measures. Provided the Omicron variant does not prove too disruptive, we expect Middle East GDP to accelerate to 4.4 per cent in 2022, after an estimated expansion of 3 per cent this year (up from 2.6 per cent three months ago).”
Activity appears to be rebounding strongly across the GCC, driven largely by higher oil output and spending on services as health restrictions ease. With business optimism continuing to rise, the report’s analysts remain upbeat about the outlook heading into 2022. GCC GDP is expected to return to pre-crisis levels in Q1 2022, with GDP growth seen accelerating from 2.7 per cent this year (0.5pp higher than we projected three months ago), to 5.0 per cent in 2022.
According to the report, the recovery will continue to follow a mixed pattern given divergent growth strategies and different policy space. The UAE’s proactive approach to attracting global investment and talent, along with greater budget headroom, means it will outperform regional peers. Meanwhile, Kuwait and the Sultanate of Oman face the prospect of a longer, more protracted recovery.
The oil sector is already benefitting from higher production quotas and will be critical to boosting regional GDP growth in 2022. It should also remain an important driver of growth beyond next year as producers expand capacity, the report points out.
Meanwhile, regional PMIs show strengthening growth momentum in the non-oil sector, with output and employment on an upward trend. Although the pandemic is not over in the GCC, high vaccination uptake has helped regional countries avoid a Delta wave. The remaining domestic Covid-19 restrictions are mostly related to mask wearing, PCR testing and ongoing social distancing.
“Low infection rates and less disruptive Covid measures have allowed mobility levels and domestic activity to return close to normal, helping fuel the economic recovery, with equity prices rising strongly. And while virus headwinds remain, our forecasts for the GCC show non-oil growth of 3.3 per cent in 2022, after estimated expansion of 3.8 per cent this year,” the report noted.
Tourists are returning to the region after borders have re-opened, aiding the recovery of the hospitality sector, with Dubai in particular witnessing a significant bounce due to the start of the delayed Expo 2020. However, the rebound may suffer in the near-term as health situation fluctuates around the world.
The price of Brent oil has eased below $80 per barrel as high Covid-19 numbers in Europe and new restrictions raised concerns about demand, but it remains significantly higher than this time last year. The Opec+ group has so far stuck to plans of steadily increasing oil output, but could adjust policy if the Omicron variant weighs on demand. The oil market is expected to swing into oversupply soon and prices should continue to trend lower as a result. Brent is projected to average $72.5pb next year, slightly higher than this year, but reaching $68pb by the end of 2022.
Higher energy prices have bolstered Gulf governments’ finances as oil revenues remain dominant in the region’s budget revenue structures. Recent data show Saudi Arabia’s budget swung back to surplus in Q3 after more than two years in the red. In Qatar and the UAE, data already showed surpluses in H1, while elsewhere in the region deficits are shrinking. But uncertainty over revenue remains and the budgetary plans for 2022 and beyond unveiled by some GCC governments point to continued fiscal restraint. Consequently, the report’s forecasts show an overall GCC budget surplus next year for the first time since 2014.