Mideast will return to ‘relative normality’ by H2

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 by Oxford Economics said on Tuesday.

Across the region, 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.

“Overall, GCC GDP will grow by 1.4 per cent in 2021, after an estimated 5.4 per cent contraction in 2020,” said the report compiled by Oxford Economics and commissioned by ICAEW.

According to the Economic Update report, the Middle East’s GDP forecast for this year stands 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 five per cent.

For the UAE, Oxford Economics has forecast a robust economic rebound, with non-oil GDP growth predicted to rise above five per cent in 2022. The widely anticipated success of Expo 2020, rescheduled to October this year, which will create an opportunity for a faster recovery in Dubai. Improved relations with Qatar and Israel will also boost visitor numbers, the report said.

Michael Armstrong, ICAEW regional director said while vaccine rollouts are underway, Middle Eastern governments must continue to develop sectors and industries that generate net value for the economy. “Increasing non-oil revenues is a challenging task in these times so innovation will be vital to the region’s economic recovery.”

Scott Livermore, chief economist at Oxford Economics, said the pandemic brought Middle East economies to a temporary standstill in the first quarter of 2020.

“Today, we are encouraged by the steps regional governments are undergoing to bring back normalcy. 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,” he said.

The report noted that 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 $9 per barrel 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,” it said.

However, some governments such as Oman and Saudi Arabia will cut expenditure against the backdrop of continued low oil revenue.

Although deficit financing needs will decline in 2021, most countries will continue to borrow in international debt markets to fund diversification programmes or refinance maturing debt at low rates, said the report.

— issacjohn@khaleejtimes.com