The Middle East?s economy has recovered from pandemic-related losses, aided by higher oil output and the lifting of COVID-19 related restrictions in some countries, according to the latest Economic Insight report by ICAEW, compiled by Oxford Economics
According to the report, the emergence of the Omicron variant presents risks to the global economic outlook. However, the Middle East has comparatively high vaccination coverage, especially across the Gulf, which is expected to limit the need for further tight control measures. ICAEW forecasts Middle East GDP growth to accelerate to 4.4% in 2022, after an estimated expansion of 3% this year, provided the Omicron variant does not prove too disruptive.
GCC GDP is forecasted to rebound to pre-pandemic levels in Q1 2022 as business optimism continues to rise, with GDP growth accelerating from 2.7% this year, to 5% in 2022.
The oil sector, which is already benefitting from higher production quotas, will remain a key economic growth driver beyond 2022 as producers expand capacity. The price of Brent oil has eased below US$80per barrel (pb) as high COVID-19 numbers in Europe and new restrictions raised concerns around demand levels. According to the report, Brent will average around US$72.5pb in 2022.
Saudi Arabia?s budget swung back to surplus in Q3
Recent data shows Saudi Arabia?s budget swung back to surplus in Q3 this year after more than two years in the red. In Qatar and the UAE, data already showed surpluses in the first half of the year, while elsewhere in the region deficits are shrinking. As a result, ICAEW forecasts an overall GCC budget surplus next year for the first time since 2014.
For the non-oil sector, low infection rates and less disruptive COVID-19 measures have allowed mobility levels and domestic activity to return close to normal, helping fuel the economic recovery, with equity prices rising strongly. ICAEW forecasts for the GCC show non-oil growth of 3.3% in 2022, following an initial estimated expansion of 3.8% this year.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia, said, ?Although high vaccination uptake has helped regional countries avoid a Delta wave, the emergence of the Omicron variant presents new economic risks. While Middle East economies have undertaken substantial investment in healthcare infrastructure, to mitigate risks, data must be collected quickly to understand the scope of the threat ? and governments must implement a dynamic response as new information comes in.?
GCC inflation will average around 2.5% next year, just above the estimated average of 2.4% this year, before falling back below 2% in 2023. As a result, regional central banks can afford to remain patient, keeping interest at current levels until the US Federal Reserve begins to hike in Q3 2022, with low financing costs supporting recovery momentum.