GCC economic outlook downgraded due to oil output cuts: ICAEW

Despite the slowdown, the report, commissioned by ICAEW and compiled by Oxford Economics, however, pointed out that optimism prevails as the region’s non-oil activity remains robust.

“The region’s economic performance weakened in Q2 as a result of the energy sector lowering oil output,” the report said.

Non-oil sector remains robust in GCC

According to the Q3 report, the revised economic outlook reflects the Middle East’s weakened performance in Q2, driven by reduced oil production in GCC countries.

“Projections for GCC growth this year have been scaled back by 0.5 percentage points to 1.4 percent,” the report said.

ICAEW, however, said nonetheless, there are encouraging indicators in the non-oil sector and domestic demand.

“Businesses have reported growth in their customer base and employment; however, this positive performance may face challenges due to the impending impact of high-interest rates on consumption and private investment,” it said.

Growth in the region’s non-energy sector is demonstrating significant resilience, primarily fuelled by the tourism-related sectors, with data showing double-digit expansion in transport, storage, accommodation and food services.

The tourism sector is experiencing rapid growth in Dubai, up 20 percent from Q1 2023, with a record 8.6 million tourists hosted.

Saudi Arabia is also witnessing substantial growth in the sector, with a notable 225 percent surge since Q1 2022.

Both Saudi Arabia and Qatar are anticipated to further boost tourism arrivals, supporting diversification efforts, the report said.

Energy prices have seen strong gains with Brent oil price rising to $90 per barrel, the highest since November last year.

“This is a result of support by Chinese stimulus measures, robust US demand and deeper supply cuts,” the report said.

Saudi Arabia has extended its voluntary 1mbd production cut through year-end, while Russia also pledged to reduce its oil exports further.

Consequently, oil price projection has been adjusted, raising the average Brent oil price estimate for this year to $83.10, against the forecast of $81.50 pb three months ago.

Hanadi Khalife, Head of Middle East, ICAEW, said this quarter has been challenging for the region, marking weaker growth than initially predicted.

“However, looking forward, the planned inclusion of Saudi Arabia and the UAE into the BRICS group next year is expected to create new opportunities for increased trade and investment. This development will also help reduce their reliance on the US dollar, offering a positive outlook for the future,” he said.

Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said the recent energy cuts have had a pronounced impact on the economic outlook for this quarter.

“As a result, 2023 is forecast to be the GCC’s weakest year for the energy sector since 2017, excluding the exceptional circumstances of 2020,” Livermore said.

He said in contrast, the non-energy sector in the region continues to thrive.

“We expect 30 million international tourists to visit Saudi Arabia next year with Qatar receiving 3.17 million visitors. The surge in the tourism industry continues to bolster the GCC’s diversification efforts.”

The report also noted the favorable level of GCC inflation in recent months, due to a decline in food and fuel prices.

However, despite the outlook of inflation normalizing, interest rates are expected to stay at the same levels as the GCC currency pegs to the US dollar, preventing regional central banks from cutting rates before the Federal Reserve starts its easing cycle, it said.