The Gulf Cooperation Council states’ cumulative economic growth is forecast to record 3.1% in 2021, exceeding expectations set by the World Bank, according to the Gulf Statistics Center.
In a recent report on the features and prospects of the GCC region’s economic performance, the center said the recovery follows a period of contraction, which the GCC’s economy witnessed in 2020 as a result of the Covid19 pandemic and what followed from disruption of economic activities and decline in crude oil prices.
The GCC’s GDP, at constant prices, dropped by 5% in 2020, recording $1.46 trillion, compared to a growth of 1% in 2019 according to the report.
The center expected a noticeable GCC economic recovery in 2021 thanks to the increase in hydrocarbon production, especially during Q4 of 2021. The economic recovery, in part, is also thanks to the extensive vaccination campaigns across the GCC, which helped mitigate the impact of Covid19 on citizens and residents alike.
In its latest report on the economic developments in the GCC region, the World Bank had expected that the economies of GCC states would get back on the growth path, achieving an overall growth of 2.6% in 2021.
Meanwhile, the center’s 2022 outlook for the GCC’s economy is continued growth albeit at slower than in 2021.
For 2022, the center expects GCC’s economy to grow by 2.7%, before picking up over the year to come to record 3.6% in 2023.
The anticipated economic recovery is in part due to the increased oil production and higher oil prices.
According to the World Bank, a strong recovery in the GCC states’s economies would be “due to the growth of the non-oil sectors and the rise in oil prices.”
Brent prices touched $81 a barrel in November, an increase of $38 a barrel in the same month of 2020.
However, crude prices in November 2021 remained $3/bbl lower than those recorded in October 2021 following the discovery of Omicron, the newest mutation of Covid19, which raised the prospects of yet another drop in demand for oil in the near term.
On December 7, the U.S. Energy Information Administration (EIA) forecasted a lower draws from the global oil stocks to reach 900,000 barrels per day in the fourth quarter of 2021 from 1.7 million barrels a day in the third quarter. And for most of 2022, oil production is expected to increase faster than the global demand, which would put a downward pressure on oil prices.
EIA further expected a downward spiral in oil prices for 2022. Its forecast set the price at $71 per barrel for Brent in the second quarter of 2022, $70 per barrel in the third quarter of 2022, and $67 dollars per barrel in the fourth quarter of 2022.
According to the center’s report, the oil sector will face potential and major risks, if a new mutation of the virus spreads, or there was a slowdown in the vaccination campaigns in emerging and developing countries.
“This would further impede the recovery of key economic sectors such as tourism and transport in the GCC countries,” the center noted in its report.
Diversifying the economy away from Oil
On the other hand, the center said that the GCC nations which have been diversifying their economies away from hydrocarbon revenues have seen a stronger growth in their non-oil economic sectors.
The center said it expected that the GCC region’s non-oil economy to grow by 3.4% in 2021, 3.7% in 2022, and 4.2% in 2023.
It attributed this positive forecast to the lifting of travel restrictions by GCC nations, which were imposed following to the outbreak of Covid19 pandemic. If anything, this means a noticeable recovery in the transport and retail sectors, said the center, resulting in supportive spillovers on the activities of the private sector.
However, the center warned that this growth is still linked to the pace of recovery of major global economies and the consequent increase in global demand for commodities in primary markets.