Middle East economies set for transition next year

Muscat: Several economies in the Middle East, particularly those in the Gulf Cooperation Council (GCC), are transitioning towards a “new normal” in 2018, allowing gradually recovery of spending, according to Economic Insight: Middle East, which was released by Oxford Economics, ICAEW’s partner.
Overall, the gross domestic product (GDP) of GCC states is expected to grow from just 0.3 per cent in 2017 to 2.8 per cent next year and accelerate from 1.4 per cent in 2017 to 3.2 per cent next year in the wider Middle East. However, the accountancy and finance body noted several risks remained for growth in the region, including those from politics and security.
Public finances now seem to be on a more sustainable path in most economies in the GCC thanks to three main factors — the upcoming value-added tax; the important social change in Saudi Arabia with the lifting of the ban on women’s driving; and a cut in public spending by almost 20 per cent from 2015-2017 at the GCC level owing to a period of emergency austerity.
With Opec-plus oil production cuts likely to be maintained through 2018 and reversed in 2019, the GDP growth is expected to pick up to around 4 per cent in both the GCC and wider Middle East in 2019.
Within this, GCC oil GDP is forecast to rebound from a 2.3 per cent contraction in 2017 to a growth of 1.7 per cent in 2018 and become around one percentage point stronger in 2019. Growth in the GCC non-oil sector is forecast to pick up from 2.4 per cent in 2017 to 3.7 per cent in 2018 and 4.7 per cent the year after.
“Economic growth prospects of the Middle East countries, particularly the GCC, are projected to improve in 2018 and the years after. However, the political and security risks remain high and could limit or delay the recovery in the region,” said Tom Rogers, ICAEW Economic Advisor and Associate Director of Oxford Economics.
Saudi Arabia
The year 2018 will be a key year of transition for Saudi Arabia in several contexts. For the first time, Saudi citizens will pay value-added tax on the goods and services they buy, Saudi women will be permitted to drive, and private (and foreign) investors may be able to take a stake in Saudi Aramco. The kingdom is at the start of a potentially decades-long process of economic diversification and social change.
Additionally, the expected increase of Brent crude to an average of $55 in 2018 and a dollar or two higher the following year, will offer some support to public spending and growth. In this context, Saudi Arabia is expected to play a key role in securing an extension of the Opec-plus deal at the November 30 meeting.