Muscat: 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, a new report said.
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 the Middle East gross domestic product (GDP) growth to accelerate to 4.4 per cent in 2022, after an estimated expansion of 3 per cent this year, provided the Omicron variant does not prove too disruptive.
These results were based on the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics.
GDP in the Gulf Cooperation Council (GCC) is forecasted to rebound to pre-pandemic levels in the first quarter of 2022 as business optimism continues to rise, with GDP growth accelerating from 2.7 per cent this year, to 5 per cent in 2022.
The oil sector, which is already benefiting 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 $80 per 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 $72.5pb in 2022.
Recent data shows Saudi Arabia’s budget swung back to surplus in the third quarter of 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 (H1), 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 per cent in 2022, following an initially estimated expansion of 3.8 per cent 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.”
Scott Livermore, ICAEW Economic Advisor, and Chief Economist & Managing Director, Oxford Economics Middle East, said “The Middle East’s economic recovery will continue to follow a mixed pattern given divergent growth strategies and policies across the region. However, the UAE’s proactive approach to attracting global investment and talent, along with greater budget headroom, means it will outperform regional peers. Countries with strict workforce nationalisation policies, such as Kuwait and Oman, face the prospect of a longer, more protracted recovery.”
GCC inflation will average around 2.5 per cent next year, just above the estimated average of 2.4 per cent this year, before falling back below 2 per cent in 2023. As a result, regional central banks can afford to remain patient, keeping interested at current levels until the US Federal Reserve begins to hike in Q3 (third quarter) 2022, with low financing costs supporting recovery momentum.
Elsewhere in the Middle East, ICAEW maintains expectations of modest growth of 2.5 per cent for Iran next year, slightly less than this year’s forecast of 2.9 per cent. Lebanon remains stuck in a deep economic crisis; pending an updated recovery plan for its economy, ICAEW maintains its reported GDP forecast of a 5.8 per cent fall in 2021 and minimal growth of 1.4 per cent in 2022. In Iraq, higher oil prices and output are supporting recovery, after the economy shrank by 10 per cent in 2020.