The GCC recovery built momentum in the third quarter (Q3), thanks to vaccine progress, easing of health restrictions, and higher oil output, Oxford Economics said in a report.
However, the bloc’s GDP will only reach its pre-pandemic level in first quarter next year (Q1, 2022), lagging other emerging market (EM) regions, it said.
Headline GDP growth will accelerate to 5.1% next year, from 2.2% in 2021, driven primarily by the oil sector as countries gradually lift output.
“We have revised our 2022 oil growth forecast for the region upward, to 6.7% from 3.8% three months ago. Although oil prices are expected to decline from their current levels in 2022, higher output equals greater income for GCC governments,” Oxford Economics said.
The modest rise in budget spending across the region next year will support non-oil growth of 3.9%, while bringing the budget for the bloc as a whole close to balance and limiting inflation to under 2.5%.
The recovery will remain uneven across countries given divergent growth strategies, the report said.
The outlook for the Gulf Co-operation Council region has improved over the past few months, with economies benefiting from domestic and global reopening, Oxford Economics said.
It expects this positive momentum to carry into 2022 as countries raise oil output. However, the bloc will continue to lag other EM regions in regaining pre-pandemic activity levels, which will not be reached until Q1 2022.
Oxford Economics forecasts show regional growth accelerating from 2.2% this year to 5.1% in 2022, the strongest pace in a decade.
The rise in oil output will be critical to boosting regional GDP growth in 2022. In July, the Opec+ group agreed to lift output by 400,000 b/d monthly into next year, gradually unwinding cuts from 2020.
Although Oxford Economics expects a slower-than-agreed pace of monthly increases next year, it has nudged up its oil growth forecast for the region to 6.7% for 2022, from 3.8% three months ago.
The oil sector should remain an important driver of growth beyond next year as producers expand capacity. Higher oil revenue will allow several governments to close budget gaps and build up financial resources, while providing opportunity to advance growth and diversification agendas.
Although it expects spending growth to be modest in 2022, it will support non-oil activity, which it sees accelerating to 3.9%, from an estimated 3.1% in 2021.
High vaccination rates have been instrumental in improving growth prospects, reducing need for health restrictions. Despite the rise in prevalence of the Delta variant and concerns over future variants, governments in the region have reopened borders.
Some regional events highly dependent on tourism – including Expo 2020 in Dubai and the FIFA World Cup in Qatar next year – are important drivers of our outlook for the non-oil economy.
High-frequency indicators, including the latest PMIs, point to strong growth momentum in the non-oil sector, with output and employment on an upward trend, whereas inflation remains relatively benign.
The rise in the oil price this year has alleviated immediate funding concerns, and given its reliance on commodity exports (both for public finances and current accounts), GCC external borrowing needs have declined
Oxford Economics said the near-term outlook for the GCC is brighter but headwinds remain – dollar pegs mean the region will have to follow the Fed timeline in raising rates even if inflation remains low. That could weigh on credit growth recovery, partly offsetting the benefits of the more accommodative fiscal policy stance.