Vaccines, higher oil price to spark Mideast recovery by H2
Region's economies to benefit from higher commodity prices, stronger external demand.
The rollout of coronavirus vaccines should allow a return to relative normality in the Middle East in the second half of 2021, while much of the region’s economies will benefit from higher commodity prices and stronger external demand.
A report compiled by Oxford Economics and commissioned by ICAEW, predicts the Middle East’s GDP for this year at 2.5 per cent, similar to the average pace from 2010 to 2019 (2.6 per cent). This follows the unprecedented decline seen in 2020, estimated to be 5.2 per cent.
However, the International Monetary Fund has revised up growth estimates for 2020 in the Middle East and North Africa because of stronger-than expected performance of oil exporters and the absence of a second wave in some countries, which has boosted non-oil economic activity.
"What we are seeing today is still a race between the vaccine and the virus, and this will shape the recovery in 2021," said Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund.
"We will have recovery across the board, but it will be divergent, uneven and uncertain," he said, adding that accelerating vaccinations could improve growth outlooks by 0.3 per cent-0.4 per cent.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia, said Middle Eastern governments must continue to develop sectors and industries that generate net value for the economy even as COVID-19 vaccine rollouts are underway. “Increasing non-oil revenues is a challenging task in these times so innovation will be vital to the region’s economic recovery.”
“In the first quarter of 2020, the COVID-19 pandemic brought Middle East economies to a temporary standstill. Today, we are encouraged by the steps regional governments are undergoing to bring back normalcy, said Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics.
However, the continued uncertainty in the global market puts more pressure on the oil-reliant economies to increase their non-oil revenues. Governments must remain proactive and continue to support their economies with pro-growth initiatives to bounce back quickly, said Livermore.
Overall, according to ICAEW report, GCC GDP will grow by 1.4 per cent in 2021, after an estimated 5.4 per cent contraction in 2020. “The vaccine rollout has been uneven but has progressed particularly well in the UAE and Bahrain, where a relatively large percentage of the population has been vaccinated compared to neighbouring countries and global peers.”
The report said expectations of strengthening activity and rising demand have lifted sentiment, pushing oil prices up to $66 per barrel in late February (up from a low point of $9pb in April 2020). The oil price outlook has also been supported by ongoing supply restraint from Opec+ producers. The group plans to increase output only modestly in the months ahead, to sustain a reduction in inventory levels, with Saudi Arabia maintaining an additional voluntary production cut of 1m barrels per day through April.
“While the current oil price level is still much lower than the GCC has been used to, it provides a reprieve to budgets and eases the pressure for further fiscal consolidation. However, some governments such as Oman and Saudi Arabia will cut expenditure against the backdrop of continued low oil revenue,” it said.
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