Oil-producing GCC to aid Middle East region’s economic growth in 2022

The Middle East region’s growth forecast for 2022 has been revised upward on the back of higher income for the oil-exporting Gulf countries from high oil prices.

The latest report by the Institute of Chartered Accountants in England and Wales (ICAEW) and Oxford Economics projected 5.2 per cent GDP growth for the Middle East region, an increase of one percentage point from their forecast released three months ago.

It said non-oil growth also continues to show strong signs across the GCC and ICAEW’s 2022 forecast for GCC non-oil activity stands at four per cent, rising from 3.4 per cent three months ago.

While many major economies are feared to slip into recession, the Gulf nations are expected to post a budget surplus this year as oil prices have been staying above $100 a barrel for the past few months, mainly due to the Ukraine-Russia crisis.

“The Middle East is faced with an interesting dilemma. Geopolitical turmoil has brought the GCC nations to the international negotiating table to aid global oil supply challenges. But hiking up oil production counteracts the region’s long-term strategy of diversification,” said Vanessa Heywood, head of Middle East at ICAEW.

The First Abu Dhabi Bank (FAB) had also projected higher regional governments post a budget surplus in 2022 and 2023 with crude oil staying above $100 per barrel.

Quoting the Institute of International Finance, FAB said the aggregated current account surplus will surge over 233 per cent from $120 billion in 2021 to around $400 billion in 2022 for the entire Middle East and North Africa region, with the GCC accounting for 90 per cent of the total.

The ICAEW study noted that the rise in oil prices has provided strong support to the macroeconomic environment across the Gulf, which is being used to offset the impact of rising inflation and supply chain disruptions to regional commodity importing countries.

“The GCC economy has seen an impressive bounce back from the disruption caused by the Covid-19 pandemic and has appeared steady despite global headwinds from prolonged market instability. Growth in the oil sector has largely been the driver of the region’s success, although Saudi Arabia recently gestured its willingness to help control rising oil prices – an indication that the region is concerned about the impact of a recession in key economies,” said Scott Livermore, economic advisor at ICAEW and chief economist and managing director at Oxford Economics Middle East.

It said inflated oil prices have led to improved GDP growth prospects in Saudi Arabia, where output is forecast to expand by 7.1 per cent, compared to four per cent previously.

“There is also optimism in the UAE, where government reform agendas and a rise in oil output are expected to underpin the growth of 6.7 per cent this year,” the report said.

It added that high commodity prices have buoyed the GCC’s fiscal and external balances but have subsequently caused inflation rates to increase. ICAEW predicts GCC inflation to average 3.1 per cent this year as compared to the 2.7 per cent forecast three months ago.

— waheedabbas@khaleejtimes.com