The anticipated interest rate cuts and a projected boost in oil output will lead to a significant pick up in GCC economic growth momentum from September, analysts at Capital Economics said.
They said the decision by the Organisation of the Petroleum Exporting Countries to keep output low until October would slow the growth momentum.
In its latest Middle East and North Africa Gross Domestic Product report, a UK-based independent research firm warned that Opec and its allies have implemented substantial output cuts since late 2022, totalling 5.86 million barrels per day, or about 5.7 per cent of global demand.
Earlier in June, Opec+ extended 3.66 million barrels per day of cuts until the end of 2025 and prolonged 2.2 million bpd of voluntary cuts until September 2024. The voluntary cuts will be phased out gradually from October 2024 to September 2025.
The countries which have made voluntary cuts to output include Kuwait, Oman, Saudi Arabia, and the UAE. Despite this delay, “non-oil sectors should continue to grow relatively strongly,” the report states.
“A monetary loosening cycle should begin soon as the Gulf follows the Fed, which we expect to start cutting rates from September,” the analysts added.
Inflation in the Gulf is expected to slow over the second half of the year, easing the squeeze on real incomes and supporting credit demand and consumer spending.
However, the report also notes that non-oil growth across much of the Gulf is expected to ease over the next few years.
They observed that a decline in oil prices next year will present a challenge to non-oil sectors, with budget and current account positions likely to weaken.
As mon-oil growth across much of the Gulf is expected to ease over the next few years, the UAE and Qatar are expected to maintain loose fiscal policies, leveraging their strong balance sheets to support their economies.
Kuwait may also utilise its strong balance sheet. In contrast, Oman and Bahrain will need to persist with a tight fiscal stance, analysts at Capital Economics said.
Saudi Arabia’s decision to maintain low oil output as part of the OPEC+ deal will constrain GDP growth in the near term, they said. “Despite efforts to manage crude prices, the report suggests that revenue will fall back next year, potentially leading the Saudi government to scale back some spending plans. Nevertheless, the Saudi economy expanded by 1.4 per cent quarter on quarter in the first three months of 2024, ending the technical recession. Both oil and private non-oil activities contributed to this growth, offsetting weaker government activities,” said the report.
The report said 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.
The report noted that in light of the Opec+ rollover, oil prices are anticipated to remain higher than expected for the rest of the year.