The Gulf economies are expected to grow by 2.1% this year, after a 5% contraction in 2020, supported by preparation for various regional events, such as Expo in the UAE and World Cup 2022 in Qatar, according to the Institute of Chartered Accountants of England and Wales (ICAEW).
The changed regional scenario and spending by the Saudi Public Investment Fund would also support growth in the GCC or Gulf Co-operation Council region, where higher petrodollars, has improved earnings outlook for the producers.
“The rise in the oil price has boosted revenue prospects for GCC producers, which derive 40%-90% of total fiscal income from oil. Higher oil revenue gives governments more scope to support post-pandemic recoveries without undermining efforts aimed at improving medium-term fiscal sustainability," Scott Livermore, ICAEW economic adviser and chief economist at Oxford Economics, said.
Although the GCC region is also taking time to heal, ICAEW report said the oil production cuts are weighing on output and new outbreaks have forced tighter lockdown measures in recent weeks, disrupting the recovery process.
"However, strong PMI (purchasing managers' index) readings, where available, support our view of growth accelerating in the coming months, boosted by rapid vaccine roll-outs in several countries that will help domestic activity move back towards normality," it said.
Given the high reliance on the oil sector for growth (both direct and indirect) and vulnerability to rising temperatures, climate change is an increasingly important issue in the GCC region.
On the wider Middle East, it said the region continues to face challenges posed by the Covid-19 pandemic, with many virus-related restrictions remaining in place, but there are increasing signs that an economic recovery is underway. The global demand picture has continued to improve, supporting the outlook for oil prices and trade. Business sentiment has strengthened in the past few months and vaccination programmes are progressing, albeit unevenly, it said, adding the economy still has a lot of ground to make up before it reaches its pre-pandemic level, but remains relatively upbeat about the pace of recovery in the first half and beyond.
"We now expect regional GDP or gross domestic product to grow by 2.4% this year, only 0.1pp lower than we projected three months ago and similar to the average growth trajectory in the last decade. We estimate the economy shrank by 4.4% in 2020," it said.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA), said the outlook for most Middle Eastern economies looks positive this quarter, but keeping coronavirus levels low will be essential to ensure economies can return to growth.