Gulf economies are in for a stronger year than 2019 as investment programs aimed at diversifying them away from oil begin to bear their first fruit, a Reuters poll among economics has suggested.
According to the respondents in the poll, Saudi Arabia’s economy could expand by 2 percent this year, up from 0.3 percent last year. This is further going to rise to 2.2 percent in 2021, the polled economists said.
The majority believe that the weak growth last year was the consequence of Saudi Arabia’s going above and beyond to support prices, and cutting substantially more oil production than it was obliged to under the OPEC+ deal. However, the effect of these cuts should begin to wane as the non-oil industries in the Kingdom gather pace.
“Real GDP growth in Saudi should benefit from stronger non-oil activity as the investment program gains momentum. The drag from the oil sector should moderate in 2020 following a sharp reduction in oil output in 2019,” the chief economist of Abu Dhabi Commercia Bank, Monica Malik, told Reuters.
“Saudi Arabia’s third quarter GDP data, showing a fall of 0.5% year-on-year, was broadly as expected, with OPEC+ cuts constraining the contribution of the oil sector to economic growth,” Oxford Economics said in a note cited by Reuters, adding that the Kingdom’s efforts to shift away from oil were beginning to yield results.
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Saudi Arabia in December said it would cut spending this year by 7.8 percent but still expected to book a budget deficit at the end of the year. This deficit is expected to hit $50 billion, or 6.5 percent of GDP, up by $15 billion from 2019.
Saudi Arabia’s neighbour, the UAE, will also do well, according to the Reuters poll. Dubai has drafted a record budget for this year of $18 billion, with Abu Dhabi, the second-largest emirate and oil hub, spending $13.6 billion under a three-year package. Dubai is hosting the Expo 2020, which is certainly positive for its economic performance, and Abu Dhabi is investing in Masdar City: a smart city/tech innovation hub project expected to transfer the emirate’s economy away from oil.
The outlook for smaller producers such as Oman and Kuwait is more guarded, but still positive, with Oman’s GDP seen to expand 1.7 percent this year and 2.3 percent in 2021, and Kuwait’s economy expanding by 1.9 percent this year and 2.6 percent in 2021.