Barring UAE and Saudi Arabia, Growth Hits Other Countries in GCC Region in 2024

Facing a slowdown in 2024 owing to oil production cuts, the GCC growth forecast has been revised down to 2.7% from 3.9% three months ago, while non-energy sectors are expected to drive growth in Saudi Arabia and the UAE.

According to the latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, despite the energy sector exerting downward pressure on GCC economic growth, robust non-energy performance is expected to offset some of the impact.

However, disruptions in shipping routes through the Red Sea and Suez Canal have pushed up freight and raw material costs, suggesting possible loss of momentum in the coming months.

The report also said that the GCC inflation would hover around 2.5%, primarily driven by housing costs. Positive trends in inflation have eased concerns of additional rate hikes by the Federal Reserve and GCC central banks.

Revised Growth Projections

GDP growth projections for Saudi Arabia and the UAE have been revised to 2.1% and 4.4%, respectively, down from 4.4% and 4.8% three months ago. These adjustments reflected strong non-oil economy and the gradual easing of oil cuts from Q3.

Recent data for Q4 of 2023 showed a 3.7% y-o-y decline in Saudi GDP, following a 4.4% contraction in Q3. Meanwhile, the UAE’s non-oil GDP is estimated to have expanded by 5.6% in 2023, driving overall GDP growth of 3%.

The sharp decline in GCC oil output last year, resulting from the introduction of oil production cuts, set a very low baseline. Even with the OPEC+ group’s voluntary extension of output cuts through Q2, the regional energy sector is poised for growth this year.

The report forecasts a cumulative expansion of the energy sectors by 1.3%, a notable turnaround from last year’s 5.7% decline. In Saudi Arabia, specifically, oil activities are expected to grow by 0.7% this year after a 9.5% y/y plunge in 2023.

Non-Oil Sectors Resilient

Non-oil sectors in the GCC are expected to continue to benefit from government and private investments. Saudi Arabia is pushing forward with Vision 2030 by directing funds into the several giga and mega projects and turning its attention to host Expo 2030, FIFA World Cup 2034 besides several other international sporting events.

Investment activity is expected to be strong in the UAE too as plans around ‘We the UAE 2031,’ Dubai Economic Agenda D33, and other strategies are implemented. Meanwhile, Qatar’s plans for LNG capacity expansion in the latter part of this decade are expected to have a positive medium term impact.

Hanadi Khalife, Head of Middle East, ICAEW, said that despite the region’s economic outlook facing headwinds from the Gaza conflict and disruptions in Red Sea trade, they were encouraged by the resilience of non-energy sectors to drive recovery.

“The UAE and Saudi Arabia’s unwavering commitment to diversifying their economies away from oil and meeting ambitious vision deadlines, speaks volumes about their pragmatic and fiscally prudent approach. Initiatives such as the Kingdom’s bond sales abroad to address fiscal deficits and the UAE’s removal from the Financial Action Task Force (FATF) grey list will enhance both countries’ reputations and help attract more foreign direct investment,” she added.

Mounting Pressures

Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said that the Middle East was facing mounting pressures, with most economies poised for a slowdown and regional fiscal policies remaining relatively unsupportive this year.

“Nevertheless, Saudi Arabia’s successful raise of $12 billion in its largest bond sale since 2017, signals market confidence in the kingdom’s creditworthiness. This issuance covers about half of the year’s projected borrowing needs as the government continues spending on diversification projects,” he added.