The GCC is likely to experience lower economic growth in 2017 amid lacklustre oil prices and continued cuts in spending on government projects, according to the latest report from the Institute of Chartered Accountants in England and Wales (ICAEW) and Oxford Economics.
The authors of the report said that GDP growth is likely to slow to 1.1 per cent this year, the weakest since the global financial crisis of 2008, from 2 per cent in 2016.
"The majority of GCC countries have taken vital steps to increase non-oil revenues, reduce subsidies and government and government expenditure," said Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia.
"One more year of austerity will help lower deficits to less alarming levels in some GCC economies."
ICAEW and Oxford Economics said, however, that a rise in global oil production underpinned their pessimistic view of economic growth in 2017 in the region as US shale producers have increased drilling activities as a result of stabilising oil prices, prices though which at around US$40 per barrel are nowhere near the $100 per barrel mark before the 2014 crash. As a result of increased shale drilling, ICAEW and Oxford Economics said they expected an average price of oil of $52 in 2017 and 2018 before a more vigorous acceleration in 2019.
Since the price of oil began its sharp descent in 2014, governments in the region have reduced energy subsidies, cut spending and raised debt in international markets to prevent deficits from spiralling out of control.
At the same time they have outlined ambitious plans to transform their oil-reliant economies with measures that include raising value added taxation and selling off some stakes in major state companies such as Saudi Arabia’s Aramco, the world’s largest oil producer.
The IMF, which has hailed the Arabian Gulf’s efforts to plug budget deficits, is projecting that the GCC grew at 1.7 per cent in 2016, but the pace is forecast to pick up to 2.3 per cent as austerity is eased back this year. The UAE’s economy grew 2.3 per cent last year and is forecast to expand 2.5 per cent this year, it said.

Source: The National