In light of the continued rise in international oil prices, “Fitch Solutions Country Risk & Industry Research” made an upward revision of its growth forecast for most of the GCC to 5.9 percent from 3 percent in its previous forecast.
Oil prices continued to rise at the end of last week due to European efforts to ban Russian oil but fell on Monday due to fears that a global recession would reduce demand for oil.
Investors are looking forward to EU talks on the Russian oil embargo, which is expected to result in tight global supplies.
According to “Fitch Solutions”, and based on the price of $100 per barrel of oil from $76 dollars in its previous forecast, the accelerated rise in oil prices after the start of the Russian-Ukrainian war will boost investment activity in the GCC.
Growth in Saudi highest in 11 years
The report believes that growth in 2022 will be 6.8 percent in Saudi Arabia, the highest level in 11 years.
“The rise in oil prices will increase the liquidity of the PIF and other government-related institutions, accelerating the development of mega projects and the activity of mergers and acquisitions. This, therefore, will lead to higher investment and private consumption,” Fitch Solutions said.
Growth in the UAE to 4.9 percent
As for the UAE, “Fitch Solutions” revised its growth forecast to 4.9 percent in 2022 at a time when the rise in oil will contribute to enhancing consumer and business confidence and will allow accelerating the implementation of projects.
This applies especially to the industrial projects in Abu Dhabi that are intensifying their efforts on the path of economic diversification to reduce their dependence on oil derivatives.
Kuwait will need another year to return to 2019 levels
“After weak growth achieved in 2021 in most of the GCC on the back of negative activities in the oil sector, the majority of these countries are on the path to recording growth.
At the end of 2022, all GCC countries will be back to 2019 levels in real terms, except for Kuwait, which will need another year,” says Fitch Solutions.
It expects real growth in the GCC to rise to 5.9 percent from 3 percent in its previous forecast. The growth in the GCC will outperform that which will be achieved in North Africa (4.2 percent) and in the Levant (3.8 percent), which were negatively affected by the Russian-Ukrainian war.
The significant recovery in oil production and exports will remain the main engine of growth in the GCC. After shrinking by 5.6% in 2020 and growing by 0.4% in 2021, “Fitch Solutions” expects that the total oil output in the Gulf will grow by 10.1% in 2022.
Inflation
Fitch Solutions says that inflation has risen significantly in most of the GCC due to the rise in the prices of commodities, especially foodstuffs and energy, resulting from disruptions to supply chains.
“The central banks in the GCC will reflect the US monetary policy based on linking their currencies to the dollar or to a basket of currencies dominated by the dollar.” But although rising inflation and tightening monetary policy will weigh on consumption, “this will be offset by strong investment and higher exports.”
Also, higher oil prices will translate into higher government revenues, which will improve the financial situation of these countries. “We believe that the GCC will continue the process of controlling their spending despite the fact that oil prices have reached levels not seen in years. This is especially true in Bahrain and Oman, which are seeking to improve their weak public finances,” it said.
It expects the GCC to achieve a large surplus in the current account, which will lead to a stable growth in foreign currency reserves. It is expected that Oman will record its first current account surplus in 8 years, while it will be the highest in ten years in Bahrain.
A poll conducted by “Reuters” gathering the opinions of economic experts over the past two weeks showed that the economies of the Gulf countries to achieve growth rates are the best during the current decade, supported by oil prices.
The poll concluded that the economic growth of the GCC will accelerate this year to a pace not seen in the last ten years, and they said that high inflation and a slowdown in the global economy are the biggest risks.
