Monday, 6 December, 2021

Faster GCC growth likely next year

Oil production set to rise

Faster GCC growth likely next year

DUBAI: As we enter the final quarter of 2021, it is a good time to look back on how the region’s economies have performed so far compared with our expectations at the start of the year and also to recalibrate our outlook for next year.

The UAE has yet to release official gross domestic product statistics for the first and second quarters of this year, but the PMI survey data suggests that the non-oil sectors have continued their gradual recovery following last year’s Covid-related contraction. Companies have generally reported increased activity on a monthly basis and domestic demand appears to be strengthening, report agencies.

Although global travel restrictions have continued to weigh down the tourism sector, the outlook for the fourth quarter is brighter here as well.

Emirates NBD expects the UAE’s non-oil sector to expand in line with our forecast of 3.5 per cent at the start of this year.

However, the decision by Opec+ to increase oil production by 400,000 barrels per day every month from August means that the oil sector contraction we had pencilled in at the start of this year for the UAE will be less severe.

Overall, the country’s headline GDP growth is likely to be in the region of 2 per cent in 2021, following a 6.1 per cent contraction last year.

In Saudi Arabia, data for the first half of 2021 shows that the non-oil sectors have recovered faster than we had expected. With consumer spending growing by about 10 per cent in the first seven months of this year (compared with the same period in 2020) and private sector credit growth remaining robust, we think the non-oil sectors in the kingdom will grow by 5 per cent in 2021, faster than we had forecast at the start of this year.

On the oil and gas front, we expect Saudi Arabia’s crude production will rise to 10 million bpd by the end of this year, from 9.4m bpd at the end of July. For the year as a whole, we think oil and gas GDP will only contract by 1 per cent in 2021, much less than we had previously anticipated.

As a result, headline GDP growth in the kingdom is likely to reach 2.5 per cent this year from -4.1 per cent in 2020 and almost double the growth rate we had forecast in the first quarter of 2021.

The outlook for next year will also be affected by the Opec+ agreement to unwind the Covid-related production cuts and to increase members’ baseline production levels from which future adjustments will be calculated.

While we believe the market can absorb an extra 400,000bpd of oil every month through the end of this year, if this pace of increased output is maintained through 2022, all of the pandemic related cuts would be unwound by the end of the third quarter.

It would also mean double-digit growth in crude oil production for major GCC oil exporters and thus sharply higher headline GDP growth in 2022.