The Gulf economies are on a solid growth track this year with the GDP expected to hit 2.4 per cent from 0.1 per cent last year, expanding at the fastest rate since 2015, according to ICAEW’s latest report (Economic Insight: Middle East Q1 2018).

The report produced by Oxford Economics, ICAEW’s partner and economic forecaster, stated that 2018 will mark a turning point for Middle East economies, allowing recovery for both oil exporters and oil importers.

Overall, the Middle East’s GDP is expected to grow 2.9 per cent this year, up from 1.1 per cent in 2017. However, the accountancy and finance body pointed out that the political environment remains challenging and continues to pose a downside risk to headline growth.

According to ICAEW report, the region’s overall economic outlook looks positive this year and in 2019, thanks to the rising oil prices (forecast at $67 per barrel), expansionary fiscal policy and relative improvements in the overall security conditions.

Economic activity is expected to pick up for oil exporters driven by two main factors, rising oil prices and increased government spending.

Overall, GCC’s GDP is expected to accelerate this year. And in 2019, as Opec phases out its output cut, GDP growth is expected to surge further for oil exporters.

The outlook is similarly positive for oil importers as well. In Lebanon, the GDP is expected to accelerate to 2.7 per cent in 2018 from an estimated 1.8 per cent in 2017, boosted by public infrastructure investment and trade and tourism recovery.

While in Jordan, the kingdom’s GDP is expected to have marginal growth of 2.5 per cent this year, up from 2.3 per cent in 2017, mainly due to improving external demand and a positive outlook from its main trading partners.

Mohamed Bardastani, the ICAEW economic advisor and senior economist for Middle East at Oxford Economics, said: "Middle East economies are recovering from the difficult years of a low oil environment, various austerity measures and geopolitical risks."

"But more reforms are required to address the fundamental problems that have plagued so many countries of the region for so long, including reducing high unemployment rates, promoting fair competition and better regulation, investing in talent and strengthening women’s legal rights," noted Bardastani.

On Saudi Arabia, the report said the kingdom was undergoing various fundamental economic and social changes.

For the first time, Saudi citizens are paying 5 per cent VAT on goods and services, a sweeping anti-corruption crackdown generated more than $100 billion for the Saudi government, cinemas are expected to open as soon as March, and Saudi women will be permitted to drive from June, it stated.

ICAEW pointed out that real GDP was expected to rebound to 2 per cent growth in 2018, after contracting by 0.7 per cent last year, underpinned by expansionary fiscal policy and recovery in oil prices.

The oil sector contracted by 3 per cent in 2017, primarily due to the Opec deal that saw Saudi Arabia cut supply by about 0.5 million barrels per day.

The extension of the Opec deal until the end of 2018 will cap oil sector growth, which is expected at 1.1 per cent this year. However, recovering oil prices and the opening of Jizan refinery this year will improve the overall outlook, stated the report.

The non-oil sector is expected to grow 2.6 per cent in 2018, thanks to various pro-growth government initiatives.

The Saudi government announced the largest ever budgeted expenditure, including a 14 per cent year-on-year increase in capital expenditure. Budget spending will also be complemented by the release of state funds amounting to SR50 billion from the National Development Fund and up to SR83 billion from the Public Investment Fund.

Michael Armstrong, the ICAEW regional director for the Middle East, Africa and South Asia, said: “The outlook for Saudi Arabia’s economy looks positive thanks to reforms and rising oil prices. However, various challenges remain such as rising living costs for households and higher input costs for businesses. Sustainable and effective countermeasures would mitigate the adverse impacts.”

Household spending will be weighed down by the 5 per cent VAT and rising living costs as a result of higher electricity tariffs and gasoline prices introduced in January, he noted.

On Oman, the report said it was a critical phase for the sultanate. "The economy looks brighter, with the main boost coming from higher oil prices and ramp-up in gas output, which will boost government and private sector incomes and lift confidence. The country continues to push ahead with the process of economic diversification (Tanfeedh) but the economy remains highly reliant on oil revenue, which makes up 70 per cent of the budget."

As a result, the fiscal position remains a key vulnerability – the government missed budget deficit estimates for the second consecutive year in 2017, but higher oil prices facilitate a more expansionary stance in 2018, even as Oman’s VAT launch is delayed until 2019.

Maya Senussi, ICAEW economic advisor and senior economist for Oman at Oxford Economics, said: "Overall, the sultanate’s GDP is forecast at 3.6 per cent this year, up from just 0.2 per cent in 2017."

"Oman’s economy looks positive in the short term but more efforts are needed in order to build a sustainable economy. There are real opportunities in the non-oil sector, especially in the tourism sector. But the continuing absence of a clear succession plan is worrying," she added.

The report also warns about the high unemployment rate which currently stands at around 17 per cent (the region’s highest).

The Oman government has to fix the underlying drivers of unemployment, particularly among the youth, with skill mismatch continuing to be a major hindrance the report cautioned.

Household spending power is expected to remain constrained, particularly for low-income earners. Petrol price increases after subsidy removal, and impending excise taxes will pose a drag on purchasing power in 2018 as inflation rises, it added.-TradeArabia News Service