DUBAI (Reuters) – Extended oil production cuts are lowering expectations for growth in Gulf economies, a quarterly Reuters poll of around 30 economists showed on Wednesday.
Supply cuts to support prices led by the Organization of the Petroleum Exporting Countries and some non-OPEC allies, including Russia, were introduced in January and were extended this month until March 2020.
In Saudi Arabia, the largest Arab economy and the world’s top oil exporter, gross domestic product will grow 1.7% in 2019 and 2.1% in 2020, the poll taken July 3-24 projected. Three months ago, the forecasts were for growth of 1.8% in 2019 and 2.2% in 2020.
The kingdom is “bearing much of the brunt” of a contracting Gulf oil sector, exacerbated by weakening global demand, said Maya Senussi, senior economist for the Middle East at Oxford Economics.
“The combination of lower oil production and prices implies weaker oil receipts and less leeway for state spending in 2020, which may weigh on further non-oil pick-up,” she said.
The Saudi economy grew 2.21% last year, recovering from a 0.74% contraction in 2017 when the economy was hit by weak oil prices and austerity measures adopted by the kingdom.
The IMF expects 1.9% growth this year.
In the United Arab Emirates, the region’s most diversified economy, growth expectations through to 2021 were revised down. They fell 0.8 percentage points to 2.2% for 2019 and down 0.2 percentage points to 3.0% for 2020.
Emirates NBD wrote in a July research note that although non-oil growth had increased in both the UAE and Saudi, “the expansion is on the back of further price discounting and there is very little evidence of job growth in both countries.“
Economists projected the UAE would return to fiscal balance in 2021 for the first time since it started running a deficit in 2015, pushing back last quarter’s expectation it would hit the target in 2020.
Oman and Bahrain, the two weakest Gulf Arab economies, whose budgets were hit hard by the collapse of crude prices in 2014, are predicted to maintain budget and current account deficits through 2021.
Bahrain aims to deliver a balanced budget in 2022, helped by a $10 billion bailout received from its Gulf allies.
A Reuters analysis of its state budget for the next two years showed Bahrain does not expect to meet some of the key goals it set in its fiscal adjustment programme. In response, the finance ministry said the deficit reduction programme was ahead of schedule.
Although the country has instituted a value-added tax, “targets were watered down in May”, Senussi said.
In Oman, she said, VAT introduction has likely been delayed into 2020, but an excise tax, which came into force in June, “should offset some of the pressure on the deficit”.
(Polling by Md Manzer Hussain, writing by Lisa Barrington and Nafisa Eltahir; Editing by Catherine Evans)