Gulf economies shrinking sharply in 2020, to pick up in 2021

Food vendors prepare kebabs at a market in Kuwait City. Kuwait’s GDP is expected to shrink by the most out of the six GCC states this year. (AFP)
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Updated 22 July 2020

Gulf economies shrinking sharply in 2020, to pick up in 2021

  • The pace of recovery in H2 and beyond may disappoint, particularly with the coronavirus set to linger

DUBAI: Economic activity in the Gulf will contract sharply this year before recovering in 2021, hit by the double shock of the coronavirus pandemic and an oil price crash, a quarterly Reuters poll showed on Tuesday.

Analysts in the July 7-20 poll see a deep economic contraction in the hydrocarbon-producing region this year as oil prices were hit on the supply and demand sides simultaneously.

Saudi Arabia’s GDP was seen shrinking 5.2 percent this year before rebounding to 3.1 percent growth next year. A similar poll conducted three months ago saw the region’s biggest economy and world’s largest oil exporter growing 1 percent in 2020 and 2 percent in 2021.

“Three months ago, most forecasts didn’t yet factor in the oil production cuts or the full extent of the COVID-19 fallout,” said Maya Senussi, senior economist at Oxford Economics, adding that limiting the Hajj pilgrimage, an important source of tourism revenue, also weighed on Saudi Arabia’s outlook.

Kuwait’s GDP was seen shrinking the most out of the six Gulf Cooperation Council (GCC) members, contracting 6.1 percent in 2020 before growing 2.5 percent next year. Three months ago, it was seen shrinking 2.9 percent in 2020 and growing 2 percent next year.

Medians forecast a 5.1 percent contraction for the United Arab Emirates’ economy this year and 2.6 percent growth in 2021. Three months ago, they expected the economy to shrink 0.4 percent this year. Tourism, a major source of revenue for the emirate of Dubai, has been hit hard by lockdown measures and travel restrictions.

“We expect revenues for the tourism and hospitality sectors to be under particular pressure given an expected sharp decline in the visitor numbers,” S&P Global Ratings said in a research note, adding that it continues to observe “broad-based pressures across various sectors” in the GCC.

Qatar, Oman and Bahrain’s outlooks also worsened for this year, with analysts expecting their economies to shrink 4 percent, 4.7 percent and 4.4 percent respectively. Their growth outlooks for 2021 improved from expectations three months ago.

“While activity is now picking up across much of the region as lockdown restrictions are relaxed, the pace of recovery in H2 and beyond may disappoint, particularly with the coronavirus set to linger,” Oxford Economics said in a research note.


Iraq pledges full compliance with OPEC+ oil cuts

Updated 08 August 2020

Iraq pledges full compliance with OPEC+ oil cuts

  • Prince Abdulaziz bin Salman Al-Saud, the Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, reaffirmed their commitment to the cuts
  • Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month

DUBAI: Iraq has pledged to meet in full its obligations under the OPEC+ oil production cuts that have been credited with rebalancing global crude markets after the mayhem of April’s “Black Monday” when prices crashed around the world.

In a telephone call between Prince Abdulaziz bin Salman Al-Saud, Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, the two men reaffirmed their commitment to the cuts, which have helped to pull the oil price back from historic lows.

Brent crude, the global benchmark, has more than doubled in the past three months.

Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month. Iraq has now committed itself to an ambitious program of compensation to make up for past overproduction.

Iraq will further reduce production by 400,000 barrels per day this month and next, Ismail said, bringing its total cut to 1.25 million barrels daily. That level of cuts could be adjusted when final estimates of compliance are assessed by the six “secondary sources” that monitor OPEC+ output.

“The two ministers stressed that efforts by OPEC+ countries toward meeting production cuts, and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets, and send a constructive signal to the market,” a joint statement added.

Prince Abdulaziz thanked Ismail for his efforts to improve Iraq’s compliance with the agreement.

Iraq had been the biggest laggard in the move toward 100 percent compliance by the 23 members of the OPEC+ alliance.

Officials in Riyadh told Arab News that Iraqi compliance had reached about 90 percent, a high level by the country’s previous standards but still short of the new targets.

Saudi Arabia has been forcefully advocating full compliance with the targets in an effort to remove oil from the global market as demand is still badly affected by the economic fallout from the COVID-19 pandemic.

The oil market will be under the spotlight later this month when the joint ministerial monitoring committee of OPEC+ energy ministers convenes virtually in the most recent of the monthly meetings set up to oversee the state of the global industry.

Oil had another strong week on global markets, breaking through the $45 barrier for the first time since early March on signs that the glut in US oil stocks was easing, as well as reductions in the amount of “floating crude” stored in tankers on the world’s oceans.

The price spiked on news of the Beirut explosion, which some analysts believed could herald a deterioration in regional security and a threat to oil exports.

Brent crude was trading at $44.70 on international markets.