GCC to face long period of weak growth: Capital Economics

The Gulf countries are projected to face a prolonged period of slow growth, as low oil prices will start to impact this year, London-based consultancy firm Capital Economics said in a report on Wednesday. 

Governments in the region are unlikely to devalue their currencies, but rather adopt a tighter fiscal policy.

Saudi Arabia’s gross domestic product (GDP) will likely slow down to just 1.5 percent this year, and – in contrast to consensus forecasts – will weaken further in 2017, as public spending cuts and tighter fiscal policy will start to reflect on its economy.

The United Arab Emirates (UAE) and Qatar are seen to be the best performers in the GCC. In the UAE, economic growth will ease over the next few years amid tighter fiscal policy and weak oil growth with GDP rising by 2.5 percent in 2016 and 2017.

“The UAE’s relatively diversified economy means that the outlook is brighter than the rest of the GCC,” CE added.

Qatar’s economic growth is projected to decline as the government has slashed spending on some investment projects and credit growth has decreased. The country will likely see its GDP growth slowing down to 2.5 percent and 3.0 percent in 2016-2017.

Kuwait is well positioned to weather cheap oil, but it is expected to rank among the region’s worst performing economies. The country’s GDP will likely grow by just 1.0 percent until 2017.

Bahrain and Oman, where devaluation risks are much higher than other neighboring countries, will likely see a GDP growth of 1.0 percent only over the forecast period.

Looking to the wider Middle East region, Egypt is expected to face another tough year in 2016 amid local currency devaluation, tighter public spending, and a troubled tourism sector. Its economy is projected to recover starting from next year. 

Jordan and Lebanon’s economic growth will continue to be weak over the coming years amid the ongoing conflicts in Syria and Iraq.

Algeria will likely see economic stagnation, while Morocco’s economy will be impacted by a drought but the country’s outlook is bullish for the medium-term. Tunisia will start to see a gradual recovery this year, the report added.