Oxford Economics confirmed that inflation in Qatar has declined from its highest rate last year to 3.7% this year, as inflation data in the region indicates a decline in price pressures, with the lowest inflation in Bahrain and Oman (0.7% and 1.2%, respectively).
The latest report on economic developments for the countries of the Gulf Cooperation Council, prepared by Oxford Economics and commissioned by the Institute of Chartered Accountants in England and Wales ICAEW, confirmed that Qatar received 1.16 million tourists in the first quarter – the second highest number recorded – and is still on track to raise the total number. For visitors to 2.9 million this year from 2.55 million in 2022.
The report added that the GCC countries are expected to witness moderate growth this year. However, the projected pace of 2023 GDP growth in the region eased to 1.9% in the second quarter, down from 2.8% in the previous quarter due to a slowdown in energy production.
More broadly, FDI inflows are expected to increase as geopolitical risks recede in the Middle East, including an agreement to restore relations between Saudi Arabia and Iran.
Non-oil sectors will continue to lead the GCC’s recovery, as they are expected to grow by 3.9% this year, likely reflecting the resilience of the local market.
Although growth forecasts for the GCC countries have been revised lower for this year, the latest opinion polls in the region reflect continued strong performance. The second quarter report reveals a slight decline in the pace of growth since the beginning of the year. However, strong domestic demand continues to drive growth in employment and new orders.
ICAEW’s revised oil price estimate now expects Brent crude to average $81.5 this year, down from a previous forecast of $85 three months ago, while growing concerns about global demand have led to further production cuts from OPEC+ countries. At the June meeting, Saudi Arabia voluntarily agreed to cut production by 1 million barrels per day for July, which could lead to a tightening of market conditions in the latter half of the year.
The updated OPEC + agreement imposes a greater burden on the growth of energy production in the Gulf Cooperation Council countries this year, weakening it by 2.1%. While the UAE is expected to increase production next year, given the higher supply ceiling in line with current capacity, most countries in the region are likely to experience stagnation in the sector in 2024.
Hanady Khalifeh, ICAEW Director of the Middle East Office, said: “While growth in the region may slow, investments in non-oil sectors are proving critical to the GCC’s ability to weather global economic pressures. Continuing to diversify and increase investment in these sectors, in line with the visions of most countries, will enable the GCC countries to maintain their steady growth path.”
Scott Livermore, economic advisor to the Institute of Chartered Accountants ICAEW and chief economist and managing director at Oxford Economics Middle East, said: “Although oil prices remain above fiscal breakeven levels for most countries, the OPEC+ cut in production quotas has increased the urgency. To diversify revenues away from oil. At the moment, the only two countries we have with first-quarter budget data are Saudi Arabia and Oman – both of which have succeeded in minimizing the fiscal damage from oil sector dynamics through higher non-oil revenues.”
Given that central banks in the GCC countries have largely implemented the Fed’s interest rate hikes this year, interest rates are expected to remain at their current high levels for the remainder of the year. And stronger inflation and labor market data could provide an argument for further tightening by the US Federal Reserve in the coming months. However, the US Federal Reserve is still expected to start cutting interest rates next year, allowing for regional monetary policy easing, albeit cautiously. This means that non-oil GDP growth in the GCC will likely continue to slow from an estimated 3.9% this year to 3.7% in 2024.
