High crude prices, increased production and stimulus initiatives will boost economic growth of the UAE and other oil-exporting GCC countries in 2018-19, according to global financial institutions.
The Institute of International Finance (IIF) has raised the projected UAE real GDP growth from 2.1 per cent to 2.4 per cent for 2018 and maintained 2.7 per cent forecast for the next year. Similarly, it increased Saudi Arabia's GDP growth projection for this year to 2.7 per cent, an increase of 0.4 per cent from its earlier forecast. Overall, it sees the GCC's projected growth rate of 2.5 per cent for 2018 and 2.9 per cent for the next year.
"Higher oil prices will provide a boost to economic activity through additional public spending and improvement in private sector confidence. We expect overall real GDP in the GCC region to shift from a contraction of 0.3 per cent in 2017 to a growth of 2.5 per cent in 2018, supported by higher oil output and government stimulus. Non-hydrocarbon growth is set to gradually improve, driven by higher public spending. However, lacklustre credit growth indicates sluggish recovery of the private sector," said Garbis Iradian, head of research for Mena, Institute of International Finance.
Iradian sees fiscal deficits will narrow as oil earnings climb, which will more than offset the high levels of public spending - an average increase of 13 per cent for the GCC in 2018.
"The external positions will also strengthen, with widening current account surpluses in the UAE, Saudi Arabia, Kuwait and Qatar. External pressures on Bahrain will persist as both fiscal and current accounts remain in deficits while official reserves are critically low," Iradian said.
Opec members recently agreed to hike output by one million barrels per day amidst rising global crude prices. Monica Malik, chief economist, Abu Dhabi Commercial Bank, had said that the GCC countries - namely Saudi Arabia, the UAE and Kuwait - would the biggest beneficiaries of this hike output as they have spare capacities.
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"We now see these GCC countries increasing their output above their Opec quota levels in H2 2018, supporting real GDP growth in their oil sectors. Moreover, oil revenue will be supported by oil prices remaining high as the overall November 2016 output agreement remains intact," Malik said.
The IIF analysts expect Brent prices to average $72 per barrel in 2018 and $65 in 2019.
The UAE earlier this month said it would increase production by 0.2 million barrels per day to 3.5mbpd by the end of 2018 to help meet any oil shortage and will also adhere to the conformity level.
Moreover, the UAE has also announced a host of new measures such as Dh50 billion stimulus by Abu Dhabi, reduction in certain fees by the government and the free zones across the country.
The International Monetary Fund on Monday said the oil-exporting countries in Mena region have benefitted from the improved outlook for oil prices, raising growth projection in its World Economic Outlook update released yesterday.
"Oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan region have benefited from the improved outlook for oil prices, but the outlook for oil importing countries remains fragile. Several economies still face large fiscal consolidation needs and the threat of intensifying geopolitical conflict continues to weigh on growth in the region. Growth is projected to strengthen from 2.2 per cent in 2017 to 3.5 per cent in 2018 and further to 3.9 percent in 2019 - 0.2 percentage point higher than in the April WEO for 2019," IMF said in an update note.
By Waheed Abbas
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