High-frequency indicators of non-oil activity point to general improvements in the GCC region?s non-oil economies, according to a report by the National Bank of Kuwait (NBK)
Higher energy prices, expansive public investments coupled with private sector stimulus programmes have spearheaded output gains over the last two years, said the report.
?Overall, the impact of external developments on the region seems to be balanced although a drop in the oil price would present a greater risk to the GCC outlook if not countered by production cuts by OPEC+. This calls for further efforts on diversification and continued progress in the fiscal, private sector and regulatory reforms over the medium term,? according to the report.
Bahrain: Infrastructure spending to remain supportive
Bahrain?s economy is projected to continue to grow at a decent 2.5-three per cent from 2019-2021. The non-oil economy is expected to hold firm at around three per cent over the forecast period due to high levels of infrastructure spending and an increase in manufacturing output.
The additional spending will likely be financed, at least in part, by the US$10bn GCC support package announced in 4Q 2018, while manufacturing activity will be boosted by the US$3bn expansion of the Alba aluminium smelter. This is one of the largest in the world, producing more than two per cent of global output and 15 per cent of Bahrain?s GDP.
Kuwait?s non-oil growth to remain moderate
Economic growth is stuck in a modest one to three per cent range over the forecast period, slightly below the regional average. Non-oil growth will remain moderate amid fiscal pressures and slow pro-growth reforms and is seen at 2.5- 2.8 per cent per year, with steady oil prices underpinning confidence and public spending rising, albeit at a limited pace.
According to NBK, improving the business environment and boosting private sector growth are crucial to create jobs for the increasing number of young Kuwaitis and eventually put Kuwait on a sustainable path.
Oman?s non-oil activity likely to accelerate
Economic growth in Oman is expected to steadily edge higher over 2019-2021, led by pro-growth reforms aimed at diversifying the economic base. Non-oil activity is likely to accelerate, averaging 3.6 per cent on a year-on-year to 2021, as the government pushes ahead with developing its major sectors such as manufacturing, transport, logistics and tourism, in line with its Vision 2020 plan.
Saudi Arabia?s non-oil outlook improves, driven by public spending
Saudi Arabia?s non-oil activity has improved and is expected to accelerate from two per cent in 2018 to 3.2 per cent by 2021.
Headline growth, in contrast, will lag non-oil growth at one per cent in 2019 and 2.4 per cent over 2020-2021 due to Saudi Arabia?s OPEC+ oil production cut obligations.
?Public finances are on a more sustainable footing, despite continued sensitivity to oil prices (oil revenues account for 65 per cent of total revenues). Spending has been rationalised, subsidies pared-back and non-oil revenues boosted through excise taxes, expat levies and the VAT,? explained NBK.
UAE?s non-oil economy to remain supportive of growth
UAE economic growth should trend more than 2019-2021, led mainly by ongoing gains in non-oil sector activity and by a pickup in the oil economy. The report foresees real GDP growth edging up from 2.2 per cent in 2018 to around three per cent in 2021.
The non-oil economy is forecast to maintain stronger growth momentum, as the transport, construction and tourism sectors (large contributors to non-oil GDP growth) gather pace, including in the run-up to the Expo 2020 event in Dubai. The non-oil sector will be further supported by growth-boosting initiatives launched at the federal level, including the adoption of new investment law to facilitate investment inflows and the issuance of long-term visas for highly skilled workers and high-net-worth individuals. This, the authorities hope, will lead to the retention of expertise and investment and boost longer-term growth.
Egypt on the right path, but challenges remain
Due to the significant progress that has been made so far, the outlook for Egypt looks promising. However, a number of risks and challenges could derail economic performance in the medium and long term if not addressed.
There is a need for the private sector to assume a greater role in the economy and create jobs for the soaring number of entrants into the workforce, which would reduce the employment burden on the public sector. ?Moreover, as macroeconomic stability is taking root, attention needs to be given to structural reforms to reduce poverty, lift the standard of living of the population and ensure that the benefits of the reforms are more widely shared,? noted the report.
