Economic growth in Saudi Arabia will accelerate next year thanks to higher oil output after two years of modest performance, according to a Reuters poll of economists, who also forecast robust growth for other Gulf Cooperation Council (GCC) states.
The Organization of the Petroleum Exporting Countries and allies led by Russia, known as OPEC+, has been curbing oil output since late 2022 but is expected to increase production in December, likely boosting revenues for the six GCC countries.
Crude oil prices are expected to remain broadly weak and average $76.75 per barrel next year, up from around $74.8 currently, according to a separate Reuters poll.
Saudi Arabia, the world’s largest exporter of crude oil, is reportedly preparing to abandon its unofficial target of reaching $100 per barrel. This will allow the kingdom to reverse past production cuts and increase market share, which along with non-oil revenue growth, will help drive faster economic growth.
The Oct. 9-22 Reuters poll of 21 economists forecast the Saudi economy would expand 4.4% in 2025, the fastest in three years, and up from an expected 1.3% this year.
The GCC economies were forecast to expand an average 4.1% next year, up from the 3.7% expected in a July poll and faster than the 1.8% growth projected for 2024.
“We expect the effects of lower oil prices and higher production volumes (to) largely (offset) each other. Since growth is focusing on produced volumes, real GDP growth will still benefit and accelerate in 2025 relative to 2024,” said Ralf Wiegert, head of MENA economics at S&P Global Market Intelligence.
Prominent economies in the region, Saudi Arabia, the United Arab Emirates, and Qatar, have been exploring ways to diversify from relying on oil as their main revenue source, with many economists predicting the growth rate in non-oil GDP will be largely in line with oil GDP next year.
“However, oil revenues will play a critical role for all of the three economies. Even in the long-term outlook, non-oil revenues will be unable to replace oil revenues,” Mr. Wiegert said.
The UAE economy is expected to be the fastest growing in the region at 4.9% next year, up from 3.7% in 2024. Qatar economic growth is projected to accelerate to 2.7% in 2025, up from 2.1%.
“The UAE’s economy will be the star performer in terms of economic growth in 2025. If OPEC+ is set to open the taps up, the UAE will stand to gain more as it has had its base oil output quota raised twice without being able to take advantage of that,” said James Swanston, economist at Capital Economics.
“Qatar and the UAE are further along in their diversification efforts and are better placed in a world approaching peak oil demand. In particular, UAE has a much larger non-oil economy and, exemplified by Dubai, is able to sustain tourism, financial services, and not rely as much on oil.”
In the rest of the GCC, growth expectations for Bahrain, Kuwait and Oman for next year are projected at 2.8%, 2.5% and 2.8%, respectively, versus 2.8%, -1.3% and 1.6% in 2024.
Inflation, which has remained stable in the region, is poised to stay subdued with median forecasts ranging from 0.8% to 3.0% for this year and next.
Published – October 23, 2024 04:30 pm IST
