Tourism, especially in light of mega regional events like Expo 2020 Dubai, will be a vital cog in the GCC’s economic revival.
Tourism, especially in light of mega regional events like Expo 2020 Dubai, will be a vital cog in the GCC’s economic revival.

GCC economies poised to bounce back higher

Dubai - Though economies remain far from pre-Covid levels, business confidence has consistently strengthened


Issac John

Published: Sun 13 Jun 2021, 10:04 PM

Last updated: Sun 13 Jun 2021, 10:06 PM

The relaxation of Covid-19 restrictions and the remarkable progress in vaccination rollouts are set to trigger a strong rebound in the GCC economies in the second half of 2021 and beyond, according to an economic insight report released on Sunday.

The study has found that business confidence in the region has strengthened in recent months amid positive signs for recovery, but economies still remain far from their pre-pandemic levels.

The Middle East’s regional GDP, according to the study conducted by Oxford Economics for the Institute of Chartered Accountants in England and Wales (ICAEW), will grow by 2.4 per cent this year, a similar rate to the region’s average growth trajectory in the last decade. The growth will be an improvement from the 4.4 per cent contraction in 2020.

The region’s economies are in a good position to capitalise on the surge of travel demand when the rest of the world opens up. Preparation for various regional events, such as Expo 2020 Dubai and the 2022 Fifa World Cup in Qatar, an easing of regional tensions and spending by Saudi Arabia’s Public Investment Fund will also support growth. Overall, GCC GDP will grow by 2.1 per cent this year, after the five per cent contraction seen in 2020.

But the IIF said tourism in Mena will not return to pre-pandemic levels until 2023. In the first quarter, the number of tourist arrivals in Mena countries was just 25 per cent of what they were in first quarter of 2020, and recent increases in Covid-19 cases in key source markets, including the EU, will delay the partial recovery to the second half of this year, the IIF said.

Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia, said the outlook for most Middle East economies looks positive this quarter, but keeping coronavirus levels low will be essential to ensure economies can return to growth.

“Governments across the region must keep developing sectors and industries that foster innovation, and continue implementing reforms to diversify economies and accelerate them into the post-Covid era,” said Armstrong.

Scott Livermore, ICAEW economic advisor and chief economist of Oxford Economics, said the rise in the oil price has boosted revenue prospects for GCC producers, which derive 40-90 per cent of total fiscal income from oil. Higher oil revenue gives governments more scope to support post-pandemic recoveries without undermining efforts aimed at improving medium-term fiscal sustainability, he said.

“Climate change is a big risk to the economy and society. Without a significantly expanded mitigation effort, the Mena region, which already suffers from climate-related issues like water scarcity, is likely to have major economic consequences that could have pronounced economic impacts by 2050,” said Livermore.

The report said oil production cuts are weighing on output, and new Covid-19 outbreaks have forced tighter lockdown measures in recent weeks, disrupting the recovery process. However, strong purchasing managers’ index readings indicate growth accelerating in the coming months, boosted by rapid vaccine rollouts in several countries that will help domestic activity move back towards normality.

Although global Covid-19 cases are still high and new outbreaks are being reported daily, the pandemic looks to be under control in China, Europe and the US. And with the summer tourist season approaching, oil demand is increasing.

This, alongside ongoing supply reductions from Opec+ producers, has stabilised the price of oil at above $65 per barrel and $64.40 for Brent crude in 2021, up from $62, said the report.

However, given the continuously fragile demand outlook and plentiful scope for stronger supply growth, the upside for oil prices will remain limited through 2022 and 2023 and the report forecasts Brent to average $61 during that period.

“Given the high reliance on the oil sector for growth, and countries’ vulnerability to rising temperatures, climate change is also an increasingly important issue in the GCC region and is receiving a sharper focus in diversification plans in countries such as Saudi Arabia and the UAE,” the Economic Insight report noted.

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