Economic growth in the Middle East is projected to be faster in 2022, than predicted by the International Monetary Fund (IMF), according to experts.
While the IMF has forecast overall real GDP growth of 4.1 per cent for both 2021 and 2022 for the Mena region as a whole, analysts at ICAEW and PwC are optimistic of a faster pace. They believe that after an estimated expansion of 3.0 per cent this year, economic growth in the region will be on track to accelerate to 4.4 per cent in 2022, provided the Omicron variant does not prove too disruptive, they said.
The GDP of the GCC is projected to rebound to pre-pandemic levels in Q1 2022 as business optimism continues to rise, with GDP growth accelerating from 2.7 per cent this year, to 5.0 per cent in 2022. The emergence of the Omicron variant presents risks to the global economic outlook. However, the Middle East has comparatively high vaccination coverage, especially across the Gulf, which is expected to limit the need for further tight control measures, ICAEW analysts forecast.
“Although high vaccination uptake has helped regional countries avoid a Delta wave, the emergence of the Omicron variant presents new economic risks. While Middle East economies have undertaken substantial investment in healthcare infrastructure, to mitigate risks, data must be collected quickly to understand the scope of the threat – and governments must implement a dynamic response as new information comes in,” says Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia.
Economists at PwC said economic diversification has been a core focus of GCC governments in recent years. “As we see signs of growth in both non-oil and oil sectors, the region looks set to achieve a swift recovery. However, travel and tourism, a critical industry, is lagging in terms of its recovery but the reopening of travel looks set to boost this and all eyes are on Dubai Expo2020, which will be an important milestone within the travel sector’s recovery,” Richard Boxshall, Middle East chief economist at PwC Middle East said.
“The Middle East’s economic recovery will continue to follow a mixed pattern given divergent growth strategies and policies across the region. However, the UAE’s proactive approach to attracting global investment and talent, along with greater budget headroom, means it will outperform regional peers. Countries with strict workforce nationalisation policies, such as Kuwait and Oman, face the prospect of a longer, more protracted recovery,” said Scott Livermore, chief economist & managing director, Oxford Economics Middle East.
The oil sector, which is already benefitting from higher production quotas, will remain a key economic growth driver beyond 2022 as producers expand capacity. The price of Brent oil has eased below $80 per barrel as high Covid-19 numbers in Europe and new restrictions raised concerns around demand levels. According to the report, Brent will average around $72.5pb in 2022.
The recovery in oil prices to their highest sustained level since 2014, and the tapering of production cuts by Opec+, are also helping drive a solid improvement in public finances, with the IMF forecasting that the GCC as a whole will return to a fiscal balance in 2023, for the first time since 2014. Even Oman, which was struggling with a large structural deficit before Covid-19 is expected to return to surplus in 2022 as a result of significant reforms on top of the rebounding oil price.
Analysts pointed out that while buoyant oil and non-oil sectors are pivotal for economic growth across the GCC, there has been much speculation on a global scale that the easing of stimulus measures enacted to mitigate the impact of the pandemic, combined with increased oil prices, will lead to an increase in inflation, however, indicators suggest this is less of a concern in the GCC than in other territories.
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