Oil output rise to aid GCC growth

Saudi Arabia could increase its oil production by 0.6 million bpd in the second half of 2018. - AFP

Economic growth in the GCC will continue to gather momentum in the coming quarters with oil output rising by 3-5 per cent in most countries after the Opec production agreement was modified, new analysis by Capital Economics says.
"We think higher oil output could boost Gulf GDP growth by an average of about 2-2.5 per cent over the coming quarters. Accordingly, while the region's recovery took a pause in the second quarter, it should gather pace in the coming months," said William Jackson, chief emerging markets economist at Capital Economics.
While Saudi Arabia's economy pulled out of recession in the first quarter of the year, the UAE's economy appears to have recovered over the first half of the year, according to a Capital Economics report.
"However, our GDP Tracker suggests that growth plateaued in second quarter as growth in the oil sector has strengthened while figures from the non-oil sector have softened," said Jackson.
In year-on year terms, UAE oil output rose by 1.3 per cent in July, a swing from June, when production contracted by 0.9 per cent year on year.  "The latest data from the non-oil sector have been less positive. The whole economy PMI - which covers the non-oil private sector - softened a touch in July."
The report said growth in passenger traffic at Dubai International Airport slowed, and cargo traffic contracted in the three months to May. "Private sector credit growth edged down too, from 3.4 per cent year on year in June to 3.2 per cent in July, while, headline inflation fell slightly from 3.5 per cent in May to 3.3 per cent in June, as housing inflation continued to slide," said Jason Tuvey, senior emerging markets economist at Capital Economics.
The International Monetary Fund expects the UAE economy to surge to 3.4 per cent in 2018. The UAE non-oil sector economy is expected to grow 3.1 per cent this year and accelerate to 3.5 per cent in 2018. According to IMF estimates, the UAE's economic activity is expected to strengthen slowly in the coming years with firming oil prices and other global indicators, and an easing pace of fiscal consolidation.  
Capital Economics data also confirmed that Saudi Arabia's economy pulled out of recession at the start of 2018. GDP expanded by 1.2 per cent year on year in the first quarter, compared with a contraction of 1.2 per cent year-on-year in the last quarter of 2017, said the report.
According to the Institute of International Finance (IIF), the agreement between the Opec and Russia could partially offset the upside to prices that came from lower output in Venezuela and Iran. Saudi Arabia, with a two million bpd spare capacity, is likely to increase its crude oil production by 0.6 million bpd in the second half of this year, while Kuwait and the UAE could each increase their output by 0.15 million bpd.
IIF economists expect Brent oil prices to average $72 a barrel in 2018 and $65 in 2019; the modest decline in prices next year will be driven by the output boost in Saudi Arabia and Russia, and continued increase in the US and Canada.
Analysts also expect higher oil prices to provide a boost to economic activity across the region through additional public spending and improvement in private sector confidence. They expect overall real GDP in the GCC region to shift from a contraction of 0.3 per cent in 2017 to a growth of 2.5 per cent in 2018, supported by higher oil output and government stimulus.
"Non-hydrocarbon growth is set to gradually improve, driven by higher public spending. However, lacklustre credit growth indicates sluggish recovery of the private sector," said Garbis Iradian, chief economist and head of research for the Mena at the IIF.
- issacjohn@khaleejtimes.com