Countries in the Gulf Cooperation Council (GCC) region will make a moderate economic recovery in the coming few years amid the expectation that the COVID-19 vaccine will be widely available by mid 2021, as per S&P Global Ratings’ new report.
The S&P Global Ratings’ new report suggests that the real gross domestic product (GDP) in the region is estimated to expand by 2.5 percent from 2021 to 2023 after a decline of nearly 6 percent this year.
The contraction in 2020 is evenly parted between the hydrocarbon and non-hydrocarbon sectors and it comes from OPEC production cuts, along with decreased regional demand due to low oil prices and the pandemic driven restrictions, the report says.
However, the pace of recovery among GCC nations may vary, with the UAE likely to be a bit slow compared to its peers in terms of real GDP growth, mainly due to the decline in the travel and tourism sectors. Oman and Saudi Arabia are expected to bring their real GDP to pre-COVID-19 levels in 2022.
“We expect a broad recovery across hydrocarbon and non-hydrocarbon sectors over the period to 2023. Our base assumption is that OPEC+ production cuts, amounting to about 17 percent of October 2018 production, end in April 2022,” the American credit rating agency said.
These assumptions are based on the expectation that widespread effective vaccination against the coronavirus could come by the middle of next year.
During 2020, UAE’s economic growth was severely hindered by the decline in Abu Dhabi’s oil activity and the slowdown of the tourism sector in Dubai.
The Dubai economy is estimated to mark a sharp decline this year, particularly due to the pandemic induced fall in the travel and tourism sector. The S&P report projects that the postponed Expo 2020, will support the emirate to recover its activities. The rating agency says that Dubai’s GDP will get back to 2019 levels only by 2023.
According to data from some other sources, the demand for travel to the UAE is recovering due to the reforms brought in the country. The nations’ flag carrier airline group, Emirates has also seen a surge in bookings from inbound and outbound travelers for December.
The Abu Dhabi economy which relies highly on the hydrocarbon sector will see a gradual economic recovery from 2021, but real GDP will only get back to 2019 levels by 2023, the S&P report noted.
The hydrocarbon sector production will get a boost from 2022 when OPEC+ production cuts are relaxed and new gas production comes on stream.
The UAE’s non-oil sector is projected to recover on the back of public investment in manufacturing, especially in petrochemicals, logistics and construction industries.
In 2020, the OPEC+ production limits and the sharp fall in net exports brought down Saudi Arabia’s real GDP. Broad declines are projected in the non-oil sectors including wholesale and retail trade and restaurants and hotels, the S&P report said.
The economic activities of the Kingdom are expected to increase up to 3 percent by 2022, mainly due to the lifting of the OPEC+ quotas. “We expect real GDP to recover to 2019 levels in 2022.”
In Oman, a moderate recovery in domestic demand and investment is expected in 2021 but the overall economic growth will remain relatively muted.
With the increasing gas production from the Ghazeer field, the economic activity will be supported and the relaxation of OPEC production cuts in 2022 is projected to enhance net exports.
The country’s real GDP is estimated to grow 2.2 percent by 2021 and 3.5 percent in 2022. Also, Oman is expected to push its real GDP back to pre-COVID-19 levels within two years.
Qatar has faced a major fall in economic activity due to the slowdown in the construction sector of the country and due to this, its real GDP growth is likely to remain below its all time average up to 2023.
The country is second in the GCC in terms of hydrocarbon dependence. Unlike most other GCC economies, its hydrocarbon sector is about 80 percent gas and 20 percent oil.
“However, it is the non-hydrocarbon sector that is dragging down economic activity in 2020 and that we expect to support the recovery in 2021,” S&P stated.
Out of all the GCC nations, Kuwait is most directly dependent on hydrocarbons and the country is projected to witness its economic growth surging in 2022 due to stronger net exports, driven by rising oil products.
“From 2023, as additional oil production capacity comes online, including from the restart of production in the Joint Neutral Zone with Saudi Arabia, we expect Kuwait’s economic growth to remain strong,” S&P said.
“We expect the non-oil sector to play an only limited role in Kuwait’s recovery over the next few years,” the report added.