The Gulf Cooperation Council (GCC) is expected to see a significant pick up in economic growth momentum from September, as anticipated interest rate cuts and a projected boost in oil output will positively impact the region. The decision by the Organisation of the Petroleum Exporting Countries (OPEC) to keep output low until October will contribute to this growth. OPEC and its allies have implemented substantial output cuts since late 2022, totaling 5.86 million barrels per day, to control global demand. Despite this, non-oil sectors in countries like Kuwait, Oman, Saudi Arabia, and the UAE are expected to continue growing relatively strongly.
The report by a UK-based independent research firm also highlighted that inflation in the Gulf is expected to slow in the second half of the year, easing the squeeze on real incomes and supporting credit demand and consumer spending. However, non-oil growth across much of the Gulf is projected to ease over the next few years, with a decline in oil prices next year posing a challenge to non-oil sectors. Countries like the UAE and Qatar are expected to maintain loose fiscal policies, leveraging their strong balance sheets to support their economies, while Kuwait may also use its strong balance sheet. On the other hand, Oman and Bahrain will need to persist with a tight fiscal stance.
Saudi Arabia’s decision to maintain low oil output as part of the OPEC+ deal will constrain GDP growth in the near term, leading to potential scaling back of some spending plans next year. Despite this, the country’s economy expanded by 1.4% quarter on quarter in the first three months of 2024, ending a technical recession. Both oil and private non-oil activities contributed to this growth, offsetting weaker government activities. The report suggests that Saudi Arabia is expected to gradually unwind its 1.0 million barrels per day voluntary output cut starting from the fourth quarter of 2025, with a more aggressive increase in oil output projected afterward.
In light of the OPEC+ rollover, oil prices are anticipated to remain higher than expected for the rest of the year, presenting a positive outlook for the region. A monetary loosening cycle is also expected to begin soon in the Gulf, following the Federal Reserve’s expected rate cuts starting from September. Overall, the report paints a nuanced picture of the GCC economies, highlighting both challenges and opportunities in the coming years. As the region navigates through the impact of OPEC decisions and global economic conditions, it will be crucial for policymakers to implement strategic measures to support sustainable growth and stability.
