Mena growth accelerates despite subdued performance from GCC
The rise in oil prices is expected to boost economic confidence and sentiment in the UAE and the rest of the region.
Dubai - Mena's aggregate GDP expands 2.7% in 2016, up from 2015's 2.6%
Economic activity in the Middle East and North Africa showed surprising resilience in 2016 despite mounting political and economic headwinds in the region, says a report.
According to the latest Focus Economics Consensus forecast, the region's aggregate gross domestic product expanded 2.7 per cent in 2016, up from 2015's 2.6 per cent due to diverging economic trends within the Mena.
"The region greatly benefited from Iran's reintegration into the global economy and its consequent surge in oil shipments. The country is projected to expand at the fastest pace in six years in the Iranian fiscal year 2016 that ends in March 2017," according to the report.
Another positive note for 2016 was Iraq's economic rebound following 2015's dismal performance. Accommodative monetary policies and improving external positions due to low oil prices prompted growth in most of the region's net oil importers to accelerate this year.
The report noted that GCC countries felt the brunt of the pain in 2016. The low oil price environment since mid-2015 forced GCC countries to implement harsh austerity measures in order to rein in their soaring budget deficits.
"Lower subsidies and a sizeable reduction in government expenditures, particularly in infrastructures, took their toll on non-oil activities. As a result, growth in GCC countries fell from 3.8 per cent in 2015 to 1.9 per cent in 2016, the weakest performance since the global financial crisis in 2009," says the report.
About the UAE economy, the report said the country is expected to achieve 3.2 per cent GDP growth in 2018 compared to 2.6 per cent this year.
"Reduced government spending will continue to constrain the economy in 2017, albeit to a lesser extent thanks to the recovery in the oil market. The non-oil sector will continue to sustain growth, though not at its full potential due to weak regional and global demand," according to the report.
Atik Munshi, senior partner at Horwath Mak, said the UAE Economic Forum in Umm Al Quwain recently predicted a growth of four per cent this year due to positive sentiments in the wake of rising oil prices and government spending.
"Oil is predicted to be in the range $50-$60 this year, but I would not be surprised if crude reaches $70. Expo 2020 Dubai allotment of contracts will also fuel government spending. Overall, I think 2017 will be better than 2016 and even five per cent growth is not farfetched," Munshi told Khaleej Times.
Apart from the increase in the non-oil sector, he said the rise in oil prices can also boost both the government exchequer as well as economic confidence and sentiment.
The UAE economy switched into lower gear in 2016 as austerity measures, weak growth among key trading partners and low oil prices continued to dampen economic activity. PMI data for 2016 showed that, despite remaining in positive territory, the index was well below the average of the previous year, suggesting a slowdown in non-hydrocarbon activities.
On the upside, infrastructure investment continued to sustain the relatively diversified economy and greater oil production helped to cushion the fall in oil prices. Going forward, Abu Dhabi National Oil Company aims to more than double petrol and petrochemicals production under a five-year plan announced last year.
About the region's biggest economy Saudi Arabia, the report said kingdom is expected to perform below par, with an expansion rate of less than one per cent.
On the rest of the major economies in the region, Egypt and Qatar will likely grow the fastest, with projected expansions of 3.4 per cent. Kuwait is expected to strike 1.8 per cent and 2.6 per cent growth in 2017 and 2018, respectively.
About the Oman economy, the report said its economic outlook still looks disappointing after a grim 2016 as spending cuts and delays in the implementation of infrastructure development projects will hurt overall growth. The sultanate may achieve 1.5 per cent growth this year that will accelerate to 2.3 per cent in 2018.