MUSCAT: The Gulf Cooperation Council (GCC) countries are expected to expand moderately this year, according to the latest Economic Insight report, commissioned by ICAEW and compiled by Oxford Economics. However, the anticipated pace of 2023 GDP growth in the region dropped to 1.9% in Q2, down from 2.8% in the previous quarter, due to the slowdown in energy output.
Although growth expectations for the GCC have been revised downwards for this year, the region’s latest survey indicators reflect ongoing strength. The Q2 report reveals a slight easing in the pace of expansion since the start of the year. However, strong domestic demand continues to drive growth in employment and new orders.
ICAEW’s revised oil price estimates now anticipate Brent averaging US$81.5pb this year, down from the previous forecast of US$85pb three months ago, while heightened concerns about global demand have prompted deeper production cuts from OPEC+ countries. In the June meeting, Saudi Arabia voluntarily agreed to a 1mb/d production cut for the month of July, which may result in a tighter market in the latter half of the year.
The updated OPEC+ agreement implies a greater drag on GCC energy output growth this year, weakening it by 2.1%. While the UAE is expected to experience a rise in production next year, due to a higher supply ceiling aligning with current capacity, most countries in the region are likely to witness stagnation in the sector in 2024.
Non-oil sectors will continue to lead the GCC recovery, projected to grow 3.9% this year, likely reflecting a resilient domestic market. The travel and tourism sector is also recovering strongly, with Dubai Airport expecting passenger numbers to exceed 2019 levels this year. The stimulus from tourism, along with a surge in population and support from the government, are reflected in the UAE’s overall economic growth and resilience to global economic headwinds.
Meanwhile, Qatar welcomed 1.16mn tourists in Q1 – the second highest number on record – and remains on track to lift the total number of visitors to 2.9mn this year, from 2.55mn in 2022. The resumption of direct flights between Qatar and Bahrain after a six-year break will reinforce the positive dynamics in the tourism and hospitality sectors. More broadly, FDI inflows are expected to strengthen as geopolitical risk within the Middle East eases, including an agreement to re-establish ties between Saudi Arabia and Iran.
While there have been no changes to regional VAT regimes this year, the UAE began to levy corporate tax at 9% from 1 June. Companies that contribute to the wider public benefit are generally exempt, as are businesses in free zones and investment funds. The exemptions aim to enhance the flexibility of the new tax programme and ensure a supportive business environment. This flexibility and relatively low tax rate could keep the overall economic impact to be modest.
Hanadi Khalife, Head of Middle East, ICAEW, said: “While the region’s growth might be slowing down, investments in non-oil sectors are proving critical to Gulf countries’ ability to withstand global economic pressures. Continuing to diversify and increase investment in these sectors, in line with the visions of most countries, will enable the GCC to maintain its consistent growth trajectory.” Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said: "Although oil prices remain above most countries’ fiscal breakeven levels, their softening and OPEC+ cutting production quotas has increased the urgency to diversify revenues away from the oil sector.
For now, the only two countries we have Q1 budget data for are Saudi Arabia and Oman – both of which have been successfully minimising the hit to public finances from oil sector dynamics by generating higher non-oil revenues.”
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