Gulf economies are expected to grow 4.4 per cent in 2014, Saudi-based Alkhabeer Capital said in its latest report.
Economic growth in the Gulf Cooperation Council (GCC) region will remain largely influenced by oil prices and supply dynamics in the oil industry. “Large surpluses and stable debt ratios should help the GCC withstand a temporary decline in oil prices, effective diversification remains the only solution in the long term,” Al Khabeer explained in its ‘Economic Review of Q1.’
GCC governments are targeting greater diversification so that the non-oil private sector starts to play a more significant role in supporting the economy, according to the Q1 review.
Recently announced budget estimates by the GCC for 2014 suggest a growing emphasis on investing in sectors such as education, healthcare and infrastructure.
These measures are aimed to improve the local human capital and initiate development of high value-added activities in the long run, it said.
The International Monetary Fund (IMF) expects UAE’s real GDP growth to remain steady at 4.5 per cent, unchanged  from the previous year, supported by a number of mega projects in the real estate sector and Dubai’s hosting of the Expo 2020 exhibition.
Saudi Arabia’s GDP growth is expected to increase to 4.4 per cent in real terms, after slowing down to 3.7 per cent in 2013.
Qatar is expected to lead in terms of growth amongst the other GCC members, growing at six per cent in 2014, boosted by large infrastructure projects and domestic consumption. On the other hand, growth in Kuwait is set to lag other economies in the GCC, growing only by about 2.6 per cent, on account of the higher reliance on the oil sector.
Al Khabeer cautiously optimistic about the world economy. “Post the first quarter of 2014, while we remain optimistic about the global economic recovery, we are watchful of the risks, including the events unfolding in Ukraine,” it said.
Al Khabeer said that the current valuations of GCC markets are still below developed markets levels and are therefore attractive based on dividend yield. However, the implementation of recent labour market regulations in some countries, especially KSA (Kingdom of Saudi Arabia), started hurting several key sectors which would be reflected in Q1 earning.
“We believe that the upside potential is fairly balanced and continue to maintain a ‘Neutral’ rating on regional equities,” it concluded.