GCC GDP could be $1.5 trillion with 2013 seeing slower growth
Real GDP growth in the GCC is likely to have slowed from 7.8 percent in 2011 to an estimated 5.7 percent in 2012, according to QNB Group. This remains a relatively high rate of growth compared with many other countries in the current challenging global economic and financial environment. The nonoil sector has driven growth while oil output has also risen.
In 2012, oil prices remained at historically high levels, boosting government revenue and spending, which, in turn, boosts growth across non-oil industrial and services sectors. Around 22 percent of government spending is capital expenditure, mainly on infrastructure in transport, real estate, education and healthcare sectors. Government spending, therefore, supports nonoil sectors such as construction and utilities.
The remaining 78 percent of government spending is current expenditure, mainly on government wages and other public services. This provides an injection of income into the GCC non-oil economy, driving growth in services and retail trade.
Additionally, nonoil industry has grown strongly as investment in major manufacturing projects, particularly petrochemicals, has boosted output.
Rising oil production was also an important factor driving growth in 2012. Total GCC oil production reached 17.2 million barrels per day, on average, in the first three quarters of 2012, 6.2 percent higher than in 2011. Higher oil production came as OPEC removed its production quotas for individual countries. The quotas had initially been put in place in 2009 when oil prices crashed, but were replaced in 2012 with a more relaxed aggregate production target for all OPEC members. OPEC also ramped up production in 2011-12 to calm oil markets as concerns grew about lower output in countries such as Libya and Iran.
Overall, despite historically high oil prices and rising oil production, strong growth in the nonoil GCC economy has sustained its share in total GDP at around 50 percent in 2012. QNB Group estimates that total nominal GDP in the GCC was $1.56 trillion in 2012, or 2.2 percent of global GDP.
Saudi Arabia is the largest GCC economy, accounting for around 47 percent of the region's GDP. The oil sector has underpinned the Saudi economy with production averaging 9.8 million barrels per day in the first three quarters of 2012, up from an average of 9.3 million in 2011. Real growth was even stronger in the Saudi nonoil sector in 2012 at 7.2 percent. Ongoing major investment projects have supported growth in sectors such as construction, which expanded by 10.3 percent in 2012.
The UAE is the second largest economy in the GCC, accounting for 23 percent of GDP. UAE real GDP growth for 2012 is estimated at 4.0 percent in the IMF's most recent Middle East regional economic outlook. Oil production was 3.2 percent higher in the first three quarters of 2012 than in the same period of 2011. The UAE is more diversified compared with other GCC countries with the services sector playing a relatively prominent role in the economy. The UAE was hard hit by the global financial crisis and a real estate crash that brought on its own ensuing debt issues. However, growth in 2011-12 has been higher than many had expected as crucial sectors, such as construction, real estate and financial services have begun to show a promising recovery.
Qatar is the third largest economy in the GCC, accounting for 12 percent of regional GDP. There has been a slowdown in real GDP growth as the State's rapid liquefied natural gas expansion program has peaked and further expansion has been put on hold, for the time being. However, growth is still strong at 6.1 percent in 2012 due to the nonoil sector. The nonoil industrial and services sectors are estimated to have exhibited strong growth of 10.1 percent and 9.1 percent respectively, according to QNB Group. This compares to just 2.1 percent for the oil and gas sector.
Kuwait accounts for 11 percent of GDP in the GCC. GDP growth is estimated at 6.3 percent in 2012, driven mainly by a 12.1 percent increase in oil production to an average of 3.0 million barrels per day in the first nine months of 2012. Nonoil growth should also be strong, supported by spending on projects. The 2012/13 budget amounted to $75 billion, a 9.3 percent increase on the previous budget, although bureaucratic constraints can lead to actual spending coming in below budget, particularly for capital expenditure.
Growth in Oman, which accounts for 5 percent of GDP in the GCC, was forecast to remain relatively steady at around 5.0 percent, according to the IMF, driven by gently rising oil production and major expansions in the petrochemical sector. A recent statement from the country's Minister of Finance, however, put 2012 real GDP growth even higher at 8.3 percent.
Finally, growth in Bahrain, which accounts for 2 percent of GDP in the GCC, was forecast by the IMF to have been just 2.0 percent in 2012. Bahrain's economy is more diversified than the rest of the GCC as it has a strong services-oriented nonoil sector (financial services account for 18 percent of GDP) and relatively limited oil reserves.
Going forward, although oil production is leveling off, nonoil sectors are likely to grow strongly in most countries, supported by rising government expenditure. Budget spending continues to rise across the GCC on the back of strong inflows of hydrocarbons revenue.
For instance, the Saudi budget for 2013 includes an increase in planned spending of 19 percent to $219 billion. In Qatar, major infrastructure projects are beginning to be ramped up to ensure they are completed within a set timeframe to meet FIFA requirements for the 2022 World Cup. Project spending of around US$30bn a year is expected in 2013-14 in Qatar. Although spending is being consolidated in the UAE, private sector investment is likely to compensate as the recovery takes hold. Some new real estate projects are being initiated and old projects revamped.
Furthermore, strong investment into nonoil industries across the GCC, including production of petrochemicals, fertilizers, steel and aluminum will continue to support nonoil growth. Therefore, QNB Group expects GDP growth in the GCC growth to stabilize at around 5 percent–6 percent in 2013-14.
- King Salman and the nanny state: how the Saudi economy is about to sustain itself on 'freebies'
- Livelihoods trump lawlessness: young working Egyptians risk everything in Libya
- RIP: King Abdullah leaves behind profound legacy for the Saudi Economy
- Impetus from within: why the Arab World needs a very Arab 'Marshall Plan'
- 'Fiscal juggling': just how many economic priorities will Saudi Arabia's new King have to focus on?