Muscat: A recovery in oil prices and a ramp-up in gas output will boost the Sultanate’s economic growth, according to a report released by the ICAEW on the Middle East economies on Monday. The growth in gross domestic product in Oman is expected to be at 3.6 per cent this year.
“Oman’s economy looks brighter, with the main boost coming from higher oil prices and a ramp-up in gas output, which will boost government and private sector incomes and lift confidence. The country continues to push ahead with the process of economic diversification (Tanfeedh) but the economy remains highly reliant on oil revenue, which makes up 70 per cent of the budget,” the report stated.
“Oman’s economy looks positive in the short term but more efforts are needed in order to build a sustainable economy. There are real opportunities in the non-oil sector, especially in the tourism sector,” Maya Senussi, ICAEW Economic Advisor and Senior Economist for Oman at Oxford Economics, said.
Household spending power is expected to remain constrained, particularly for low-income groups. Petrol price has increased after subsidy removal, and impending excise taxes will pose a drag on purchasing power in 2018 as inflation rises.
The report added that Gulf economies were on a solid growth track, with gross domestic product (GDP) growth in 2018 expected to expand at the fastest rate since 2015.
“Overall, the Middle East’s GDP is expected to grow by 2.9 per cent this year, up from 1.1 per cent in 2017,” it added.
The region’s overall economic outlook looks positive this year and in 2019, thanks to the rising oil prices (forecast at $67 per barrel this year), expansionary fiscal policy, and relative improvements in overall security conditions.
Economic activity is expected to pick up for oil exporters driven by two main factors, rising oil prices and increased government spending. Overall, GCC’s GDP is expected to grow by 2.4 per cent this year, up from 0.1 per cent last year. In 2019, as OPEC phases out its output cut, GDP growth is expected to accelerate further for oil exporters.
The outlook is similarly positive for oil importers as well. Lebanon’s GDP is expected to accelerate to 2.7 per cent in 2018 from an estimated 1.8 per cent in 2017, boosted by public infrastructure investment and trade and tourism recovery. In Jordan, the kingdom’s GDP is expected to have a marginal growth of 2.5 per cent this year, up from 2.3 per cent in 2017, mainly due to improving external demand and a positive outlook from its main trading partners.
“Middle East economies are recovering from the difficult years of a low oil environment, various austerity measures, and geopolitical risks. But more reforms are required to address the fundamental problems that have plagued so many countries of the region for so long, including reducing high unemployment rates, promoting fair competition and better regulation, investing in talent, and strengthening women’s legal rights,” Mohamed Bardastani, ICAEW Economic Advisor and Senior Economist for Middle East at Oxford Economics, said.
Saudi Arabia is undergoing various fundamental economic and social changes. For the first time, Saudi citizens are paying 5 per cent value added tax (VAT) on goods and services.
Real GDP is expected to rebound to 2 per cent growth in 2018, after contracting by 0.7 per cent last year, underpinned by an expansionary fiscal policy and recovery in oil prices. The oil sector contracted by 3 per cent in 2017, primarily due to the OPEC deal that saw Saudi Arabia cut supply by some 0.5 million barrels per day. The extension of the OPEC deal until the end of 2018 will cap oil sector growth, expected to be 1.1 per cent this year.
Recovering oil prices and the opening of Jizan refinery this year, however, will improve the overall outlook. The non-oil sector is expected to grow by 2.6 per cent in 2018, thanks to various pro-growth government initiatives.
The Saudi government announced the largest ever budgeted expenditure, including a 14 per cent year-on-year increase in capital expenditure.
Budget spending will also be complemented by the release of state funds amounting to 50 billion Saudi riyals from the National Development Fund and up to 83 billion Saudi riyals from the Public Investment Fund.
“The outlook for Saudi Arabia’s economy looks positive, thanks to reforms and rising oil prices. Various challenges, however, remain, such as rising living costs for households and higher input costs for businesses. Sustainable and effective countermeasures would mitigate the adverse impacts,” Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa, and South Asia (MEASA), said. Household spending will be weighed down by 5 per cent VAT and rising living costs as a result of higher electricity tariffs and gasoline prices introduced in January. Inflation is expected to reach 4 per cent this year, up from -0.3 per cent in 2017