ICAEW's Economic Insight Middle East warns that whilst GDP growth in the Middle East is above the global average and expected to remain steady in the short term, oil prices will drop as global supplies rise. The combination of the rapid expansion of US shale production and the loosening of international sanctions on Iran mean oil prices will continue to fall at the same time as demand from emerging markets slackens. However, whilst GCC governments have recognised
the need to diversify away from oil, they face a challenge in terms of skill shortages. Strong population growth means countries will be in a position to benefit from a ‘demographic windfall’ if they invest in education. Conversely, a lower-skilled population would lead to rising unemployment and a drain on national resources.
The report also shows:
- Saudi Arabia raised oil production dramatically to record levels in recent months in response to unexpectedly high prices. This is expected to drive GDP growth of 4% this year, while expansion in the non-hydrocarbon sectors should counteract falling oil prices in 2014, pushing GDP growth up to 4.8%.
- Whilst oil and gas continue to dominate the economy of Oman, Muscat’s new airport opening in 2014 is expected to boost the tourism industry.
- Bahrain remains slightly more vulnerable than other GCC countries owing to concerns over political tensions, however recovering oil outputs should lead to growth of around 4.5% in 2013.
- Investor confidence in the UAE is recovering
since 2009 and foreign direct investment (FDI) is expected to improve, setting the scene for robust long-term growth.
- Kuwait has raised oil production in response to rising prices but uneasy relations between government and parliament mean other reforms are lagging. High oil prices will support the economy in the short term but concerns remain over long term fiscal sustainability.
Economic Insight: Middle East is produced by Cebr (The Centre for Economics and Business Research), ICAEW’s partner and forecaster. The report provides ICAEW’s 140,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of the Middle East focussing on the Gulf Cooperation Council (GCC) member countries (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), as well as Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).