Oxford Economics, an economic think-tank, has revised its growth forecast for the GCC region to 2.2 percent from 2.7 percent three months ago.
The lower growth rate is due to the slow recovery for the region in 2024 due to extended oil production curbs, Oxford Economics’ latest Economic Insight report for the Middle East said.
The report, commissioned by ICAEW, however, said non-energy sectors in member countries remain resilient.
“The OPEC+ group’s extension of voluntary output cuts through Q3 implies a delayed recovery in GCC energy sectors. GCC oil output will now shrink by 2.6 percent this year instead of the 1.3 percent expansion forecasted three months ago,” the report said.
Saudi Arabia, which is cutting production to the greatest extent, will see oil activities contract by 5 percent this year, down from a predicted growth of 0.7 percent three months ago.
However, as voluntary production cuts are reversed in 2025, energy sectors will begin making positive contributions to GCC growth, Oxford Economics said.
Qatar’s GDP growth projection for this year stands at 2.2 percent and is expected to rise to 2.9 percent in 2025.
In contrast, Bahrain’s GDP growth is 3.1 percent this year, but is expected to slow to 1.4 percent in 2025.
“Since Qatar is not involved in the OPEC+ production quotas, its gas sector is a priority, with authorities doubling down on the North Field gas expansion project, promising a positive medium-term impact. Bahrain, on the other hand, continues to diversify its economy and reduce reliance on oil revenues,” the report said.
Oxford Economics said its high-frequency data paints a positive outlook for non-energy sectors across the GCC.
In Saudi Arabia, investments are expected to flow into key sectors supporting giga-projects, including construction, manufacturing, and transportation.
Strong momentum in the sports and entertainment sector will also be seen as the country’s transformation continues, with tourism remaining key to Saudi’s growth agenda, the report said.
Tourism is a strategic sector in other GCC countries too, and will remain a key growth driver. Tourism activity has rebounded strongly, with record visitor numbers across the GCC in 2023, extending into this year, the report said.
The Oxford Economics report said non-oil economies will continue to grow despite the GCC’s fiscal positions deteriorating.
“Saudi Arabia, Bahrain, and Kuwait will likely see budget deficits this year and next as the current oil price level is below the fiscal breakeven point. However, the overall GCC budget position will likely remain in surplus, bolstered by strong financial standings and favourable credit ratings, allowing continued access to funding from capital markets and IPOs,” it said.
Hanadi Khalife, Head of Middle East, ICAEW, said: “While geopolitical risks present headwinds for the GCC and wider Middle East, we are encouraged by the ongoing commitment to diversification and sustainability targets.”
Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said although the region faces escalating pressures amid slowing global economies, the GCC remains relatively positive due to strong bilateral deals and investment.
Oxford Economics has also revised its GCC inflation forecast for 2024, lowering it by 0.3 percentage points to 2.2 percent this year, with a further slowdown to 2.1 percent expected next year.
“Excluding housing rents in some countries, notably Saudi Arabia, inflationary pressures remain contained, with rates below 2 percent in all GCC countries except Kuwait and the UAE,” it said.
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