Higher output and recovering crude prices aid GCC's growth

 Higher crude production and recovering oil prices will aid growth in an otherwise sluggish oil sector and strengthen fiscal and external balances for the GCC economies, a global organisation of chartered accountants said in report.
However, despite the positive outlook downside risks remain as rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector amid escalating trade war between US, China a wnd the EU that could weigh on the region's economic outlook, ICAEW, the accountancy and finance body, said in a report.
After a relatively slow start to 2018, macroeconomic conditions seem more promising for regional economies with the overall, Middle East GDP expected to grow from 0.9 per cent in 2017 to 2.4 per cent in 2018.
In its latest Economic Insight report produced by Oxford Economics, ICAEW said the global crude oil price is forecast to average at $78 per barrel in second half 2018, and at  $74.5 per barrel for the year.
"Although the rise in oil prices promises to support growth in the region, rising interest rates and tighter monetary conditions could slow down momentum in the non-oil private sector," said Mohamed Bardastani, ICAEW Economic Advisor and senior economist for Middle East at Oxford Economics.
"Moreover, any escalation of the trade war between US, China and the EU could weigh on the region's economic outlook through weaker external demand and lower oil prices. Sustained implementation of economic and structural reforms is needed to improve the business environment, eliminate impediments to job creation and to reduce the government's footprint in the economy," said Bardastani.
Citing recent IMF figures, the report said Bahrain and Saudi Arabia are under the greatest pressure with highest fiscal break-even oil prices this year at $113 and $87.9 per barrel, respectively. Followed by Oman and the UAE at $77.1 and $71.5 per barrel, respectively. Kuwait and Qatar enjoy the lowest fiscal break-even oil prices at $48.1 and $47.1 per barrel, respectively.
The report said the non-oil private sector is also starting to show some signs of recovery. The Purchasing Managers' Index (PMI) for Saudi Arabia and UAE, the region's biggest economies, reached their highest levels this year in June, reflecting growing momentum in the non-oil private sector. Michael Armstrong, ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA) said Saudi Arabia is on the right track to economic diversification and is implementing the necessary fiscal and social reforms to support these efforts.
"We're also encouraged by the recent inclusion of Saudi Arabia in the MSCI Emerging Market Index. This will definitely help in attracting foreign investment, which in turn will support the expansion of the private sector's role in generating output and creating jobs," said Armstrong. The outlook for Bahrain's economy remains stunted by the ongoing contraction in the oil sector and lack of policy space due to persistently wide budget deficits and high levels of public debt. "The fiscal risks arise largely from reliance on debt-fuelled spending and a bloated public sector while reform implementation has generally lagged behind peers, eroding the competitive edge gained from early diversification of the economy," said the report.
Maya Senussi, ICAEW Economic Advisor and Senior Economist for Bahrain at Oxford Economics, said for Bahrain fiscal adjustment must be a priority. "The public debt is expected to continue to rise to alarming new levels in the medium term. This highlights the urgent need for a comprehensive strategy to ensure fiscal sustainability and reduce the reliance on external financing." 
- issacjohn@khaleejtimes.com