Regional growth to rise by 2019, says World Bank

Growth in the Arabian Gulf is set to recover in 2019 and reach 2.6 per cent thanks to higher non-oil growth, easing of fiscal austerity measures and ongoing reforms, the World Bank said.

Growth will rise from 1.3 per cent this year, the weakest since 2009, supported by higher oil prices, which have been buoyed by a global output cut struck between Opec and 11 other countries led by Russia.

Although the oil deal has cut into overall growth, the bank believes that non-oil growth has bottomed out, propping up spending and sentiment in the non-oil sector.

“The green shoots of recovery are cropping up, helped by the recovery in global energy prices over the past year,” said Nadir Mohammed, the country director for the GCC countries at the World Bank. “That’s good for public fin­ances across the region, and providing space to governments to focus on long-term challenges.”

Growth in the GCC, which plummeted last year to 1.9 per cent from 3.8 per cent in 2015, will rise to 2.3 per cent next year, the report added.

The IMF in April had lowered its overall forecast of growth for the region, reasoning that the oil output deal would trim production of regional crude. The IMF expects real GDP growth for the seven oil-exporting countries in the Middle East of 1.9 per cent this year, which is a full percentage point lower than the 2.9 per cent growth it forecast for the group in October.

Although fiscal deficits in the region are narrowing as governments trim spending and introduce new revenue streams such as value-added tax, there are dim prospects for double-digit surpluses.

“With budgetary pressures lessening, the region needs to shift focus away from short-term cuts in recurrent spending and consolidation of capital spending towards deeper, multi-dimensional fiscal policy and institutional reforms,” the bank said. “These will help to secure long term fiscal sustainability, and also support the development of vibrant private sectors.”

Despite its bullish outlook, the bank pointed to some bearish factors that may influence economic growth, such as volatility in oil prices and geopolitical events having a spillover effect into commodity and financial markets.

“In addition to uncertainties emanating from geopolitical developments in the region, Opec’s production cuts also could be undercut by quick-acting non-conventional energy producers in North America,” said the bank. “Any turbulence in global financial markets could affect funding costs for a region which continues to have large financing needs.”

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