Gulf Arab economies to accelerate modestly through 2020 – poll

The UAE’s private sector has been hurt by the slump of the last few years, especially with real estate prices. (AFP)
Updated 18 October 2018

Gulf Arab economies to accelerate modestly through 2020 – poll

  • Gulf Arab economies will probably enjoy their best environment for growth since the oil price crash
  • Many economists do not expect oil prices to keep rising in the long term

DUBAI: Gulf Arab economies are likely to accelerate over the next couple of years as governments boost spending, but growth will not return to the boom levels enjoyed before oil prices plunged in 2014, a quarterly Reuters poll of economists found.
Since mid-2018, the countries have been increasing oil production as restrictions imposed by a global agreement to restrain output have eased. This is expected to inflate gross domestic product in their oil sectors.
Meanwhile, higher oil prices are giving governments more money that they can spend to stimulate demand in the non-oil parts of economies. Brent crude is above $80 a barrel, near four-year highs, up from around $75 three months ago.
Consequently, Gulf Arab economies will probably enjoy their best environment for growth since the oil price crash.
“The surge in oil prices over the past few months ... is likely to tempt policymakers to loosen fiscal policy further,” said Jason Tuvey, senior emerging markets economist at London-based Capital Economics.
“Most governments are currently in the process of preparing their budgets for 2019 and the backdrop of higher oil prices means that the authorities are likely to put forward plans to raise spending significantly next year. That should help to support growth in non-oil sectors.”
Saudi Arabia has already said it plans to increase state spending over 7 percent next year, and on Tuesday, it appeared to loosen fiscal policy slightly in an announcement on annual allowances for state employees.
The poll of 17 economists projected Saudi gross domestic product would grow 2.0 percent this year, 2.5 percent in 2019 and 3.0 percent in 2020, after shrinking 0.9 percent last year, its first decline since the global financial crisis in 2009.
Growth in the UAE, Kuwait and Qatar is also expected to accelerate in 2019 and rise further or maintain that level in 2020. The UAE’s GDP is predicted to expand 3.1 percent next year and 3.5 percent in 2020, after 2.5 percent this year.
Nevertheless, growth in the region is not likely to come close to rates seen in the boom years. Saudi Arabia averaged over 5 percent in the five years through 2014; the UAE averaged 4.5 percent.
One reason is that private sectors have been hurt by the slump of the last few years; companies across the region are cautious in hiring and real estate prices are sinking. Also, U.S. monetary tightening is lifting Gulf interest rates.
Meanwhile, many economists do not expect oil prices to keep rising in the long term, so governments will save rather than spend much of their windfall revenues. Capital Economics, for example, forecasts oil will fall back to $60 by the end of next year and $55 by the end of 2020.
The two smallest and financially weakest members of the six-nation Gulf Cooperation Council, Bahrain and Oman, are not expected to see a surge in growth next year because their state spending is constrained by big budget deficits.
Bahrain this month obtained commitments from its rich Gulf allies for a $10 billion, multi-year aid package, but that is tied to deficit-cutting reforms that are to include spending reductions in some areas.
Bahrain’s GDP growth is expected to edge down to 2.8 percent next year and 2.6 percent in 2020 from 2.9 percent this year. Oman’s growth is projected to slip to 3.0 percent and 2.7 percent from 3.1 percent.

Davos at crossroads in age of populism, looming ‘climate catastrophe’

Updated 21 min 51 sec ago

Davos at crossroads in age of populism, looming ‘climate catastrophe’

  • Raft of Middle East delegates expected at World Economic Forum meeting
  • Event grapples with tough issues at time of ‘permanent global crisis management’

DAVOS: The delegation of Saudi and other Middle East leaders expected in Switzerland for the annual meeting of the World Economic Forum (WEF) will find an organization at a crucial stage in its 48-year history.

Davos 2019 faces more headwinds than any annual meeting of the WEF has experienced for years, and many of the big issues that confront it — changing world trade relations, economic challenges and climate change — are also of serious concern for Middle East policymakers.

The yearly gathering of the global power elite has this year been hit by some big-name absentees. In 2018, there was an early buzz in the Alpine resort on the news that President Donald Trump was, surprisingly, to attend. This year the US president has decided to stay at home to deal with the government shutdown, and pulled out most of the top-ranking US delegation too.

A few weeks ago WEF officials were talking about the “strong man’s Davos” on speculation that Trump, Russian President Vladimir Putin and President Recep Tayyip Erdogan of Turkey might meet up in the snowy Swiss town, but none of that has materialized.

President Emmanuel Macron of France and Prime Minister Theresa May of the UK have also decided that events at home — violent street protests and the rolling Brexit crisis respectively — preclude their attendance at the annual meeting.

The absence of these big-power figures gives a taste of the second problem Davis 2019 faces: The global populist wave triggered in 2016 by the election of Trump and the British referendum on withdrawal from the EU are directly contrary to the WEF’s core philosophy of globalism, inclusion and tolerance.

The WEF is fighting back. Not only has it mounted a strong defense of its globalist ethos under the theme “Globalization 4.0,” but it has also pointedly highlighted the defects in the populist approach to global affairs.

The WEF’s Global Risks Report, published last week, could be read as a condemnation of the populist movement. In many areas — from threats to the world economic system to what it called an impending “climate catastrophe” — the WEF’s message was that populism, and a resulting inability to organize international relations, is a threat to global wellbeing.

Klaus Schwab, the WEF founder and chairman, said that the world is at “a crossroads” with the prospect of “permanent global crisis management” that could “deteriorate into chaos.”

This changing world outlook has also affected the Middle East. A strong US relationship with Saudi Arabia under President Trump has been counterbalanced by Washington’s general disengagement from some key parts of the region, as with the withdrawal from Syria.

Likewise, the Middle East, with its recent shift toward Asia and Africa as key trading areas, will not welcome any broader threat to global economic and trade relations that could result from an escalation of the US-China trade war.

The Middle East section of the Global Risks Report found that many leaders in the region are worried about the prospect of fiscal crises impacting their economies, with high levels of government spending not compensated by rising energy revenues. They were also concerned about the prospect of another “shock” in oil and gas prices following a period of volatility in global energy markets.

Saudi business leaders are also worried about the possibility of increased cyber and terrorist attacks, which is another theme of the WEF meeting, as well as a possible failure of regional governance.

Davos delegates will get the opportunity to discuss issues of particular interest to the Middle East in sessions on energy, the geopolitical agenda, and the “Strategic Outlook on the Middle East” on day one of the meeting.

Other topics of acute interest to the region will be raised on day two, with discussions on the emerging markets outlook, terrorism, and “The New Energy Equation,” a session in which Khalid Al-Falih, Saudi energy minister and chairman of Saudi Aramco, will participate.

Later on Wednesday, some artistic relief will be provided by an onstage interview with Haifaa Al-Mansour, Saudi Arabia’s prominent female filmmaker and winner of the WEF’s Crystal Award. Later in the week the Middle East outlook will be considered, as will the region’s changing relationship with China, India and other Asian economies in a panel including Mohammed Al-Tuwaijri, the economics minister of Saudi Arabia.

On the sidelines of the main WEF meeting in the Congress Hall, Saudi business leaders will host a series of events, including Aramco, SABIC and the Saudi Arabia General Investment Authority (SAGIA).

The UAE is also well represented at the meeting, with a party headed by Dubai Crown Prince Hamdan bin Mohammed. Leaders from the Emirates are most concerned about possible large-scale cyberattacks and the misuse of technology, a well as energy volatility, according to the risk report.