With the rise in oil prices and the rollout of COVID-19 vaccines across the world, the economic growth in the Middle East region is expected to accelerate in the second half of this year, according to a new report.
The report commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW) found that the economies in the Middle East will expand by 2.5 percent in 2021, similar to the 2.6 percent average growth rate recorded between 2010 and 2019, following a 5.2 percent contraction last year.
Meanwhile, a report compiled by Oxford Economics shows that growth in the GCC region is anticipated to recover by 1.6 percent in 2021, after a 5.4 percent contraction in 2020.
“Many countries in the Middle East have had to clamp down, imposing restrictions on travel and the domestic economies to curb the spread of the virus. However, vaccine rollouts should allow a return to relative normality in the second half and much of the region will benefit from higher commodity prices and stronger external demand,” the report stated.
The countries in the region including the UAE, Saudi Arabia, Bahrain and Jordan are currently widening their vaccination campaigns to control the spread of coronavirus infections as early as possible.
According to vaccine tracker reports, the UAE has already administered 7.6 million doses covering 35.4 percent of the population, while the Arab world’s largest economy Saudi Arabia covered 5.3 percent of its total population with 3.6 million doses.
The increase in oil prices following an OPEC+ agreement to limit supply is also expected to support the economies of the Middle East countries to recover from the pandemic. Even though the current level of oil prices is much lower than earlier records of GCC, it is giving a reprieve to budgets and is easing the pressure for further fiscal consolidation.
“Although deficit financing needs will decline this year, most countries will continue to borrow in international debt markets to fund diversification programs or refinance maturing debt at low rates,” the report noted.
Further, the report pointed out that the slow return of expat workers will exert downward pressure on housing, despite tentative signs of rents bottoming out in the UAE. Regional inflation is expected to be higher than in 2019-2020 at an average of 2.5 percent in 2021.
As the UAE authorities tighten restrictions to control the coronavirus cases, the ICAEW’s growth estimate for the emirate’s economy has been revised downward. It forecasts non-oil GDP will expand by 3.3 percent in 2021, down from a 4.2 percent growth estimate three months ago.
The UAE will also witness the benefits of its new regulations like granting citizenship to foreigners as well as allowing 100 percent foreign ownership of onshore companies.
Meanwhile, Qatar is expected to grow 2.8 percent this year, following a contraction of 3.1 percent in 2020. The recovery in the non-oil sector of the country will resume after the current period of weakness, benefiting from stronger demand and outlays on infrastructure projects in preparation for the 2022 World Cup.