BANGALORE (Reuters) – Economic growth in the Gulf Cooperation Council (GCC) countries will accelerate this year to a pace not seen in the last decade, a Reuters poll of economists said, citing rising inflation and a slowing global economy as the biggest risks. Crude prices, the main driver of Gulf economies, rose after Russia’s attack on Ukraine in February and kept rising, giving a major boost to the region’s oil and gas-rich economies. A Reuters poll from April 12 to 22 forecast overall growth for the six-nation Gulf Cooperation Council (GCC) economies would average 5.9 percent this year, the fastest pace since 2012.
Crude oil production
Khadija Haq, chief economist at Emirates NBD, said: “The economies of the Gulf Cooperation Council (GCC) countries have had a relatively strong start to 2022. The hydrocarbon sectors have benefited from increased oil production since the beginning of the year, with crude oil production rising 12 percent in the first quarter of 2018. 2021 for the United Arab Emirates and 19 percent for the same period for the Kingdom of Saudi Arabia.” She added, “The survey data for the first quarter of the year indicates a strong expansion in the non-oil sectors as well, with strong growth in business activity and new work in the UAE, Saudi Arabia and Qatar.” As for Saudi Arabia, the region’s largest economy and the world’s leading exporter of crude oil, about 80 percent of respondents, or 17 out of 22 respondents, raised their expectations compared to the previous poll in January. They expected growth at 6.3 percent in 2022, up from 5.7 percent expected three months ago, which is followed by a decline to 3.2 percent next year. If that happens, growth in 2022 will be the fastest since 2011 when the average oil price averaged around $111 a barrel. The expected growth in Kuwait was 6.4%, and in the UAE, 5.6%, to be the fastest in about a decade. Expected growth for Qatar, Oman and Bahrain came at around 4 percent, the fastest in several years.
Inflation is the biggest risk
But when asked about the two biggest risks facing GCC economies this year, ten of the 12 economists who answered an additional question said they are rising inflation and a slowing global economy. Inflation has risen in most of the economies of the Gulf Cooperation Council (GCC) countries in the past few months on the back of rising food prices, caused by the Russian-Ukrainian war. Although modest compared to many other countries, inflation in the Gulf Cooperation Council is expected to rise to more than two percent this year, with the highest average forecast coming from Qatar at 3.5 percent and the lowest for Saudi Arabia at 2.5 percent.
Rising global food prices
“In the face of rising global prices for goods and food, we have revised our 2022 inflation forecasts for the GCC region to be around 3.5 percent from around 2.5 percent,” said Ilker Domack, Citi’s regional head of economics. “Since the Gulf Cooperation Council countries import 85 percent of their food, the continued upward pressure on global food prices could pose a challenge to policy makers in the region,” he added. The uncertainty caused by the conflict in Ukraine could also have a negative impact on the global economy that is still recovering from the effects of the pandemic. The International Monetary Fund last week lowered its forecast for global growth for 2022 due to the impact of the war, describing inflation as a “clear and present risk”. GCC countries, which rely heavily on energy export earnings, will face weaker demand due to the economic slowdown, especially in China, one of the world’s largest importers of oil and gas.
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