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GCC economies rebound as COVID-19 retreats, oil surges

3 Nov 2021 GCC COVID-19 By GULAM ALI KHAN

Muscat – As the COVID-19 pandemic induced challenges subside and non-oil sectors return to their pre-pandemic levels, the GCC countries are primed for swift economic recovery this year, according to PwC.

In its latest Middle East Economy Watch report released on Wednesday, PwC said the economic recovery is accelerating across the GCC despite the concerns about inflation.

‘A combination of factors are contributing to recovery across the region. Non-oil growth is a pivotal driver of this recovery; sectors such as financial services have emerged from the pandemic in a position of strength,’ the report said.

The recovery in oil prices to their highest sustained level since 2014 and the tapering of production cuts by OPEC+ are also helping drive a solid improvement in GCC public finances, PwC said. The IMF has forecasted that the GCC as a whole will return to a fiscal balance in 2023, for the first time since 2014.

‘Even Oman, which was struggling with a large structural deficit before COVID-19, is expected to return to surplus in 2022 as a result of significant reforms on top of the rebounding oil price,’ PwC noted.

‘While buoyant oil and non-oil sectors are pivotal for economic growth across the GCC, there has been much speculation on a global scale that the easing of stimulus measures enacted to mitigate the impact of the pandemic, combined with increased oil prices, will lead to an increase in inflation, however indicators suggest this is less of a concern in the GCC than in other territories,’ it said.

Richard Boxshall, Middle East chief economist at PwC said, “Economic diversification has been a core focus of GCC governments in recent years.

As we see signs of growth in both non-oil and oil sectors, the region looks set to achieve a swift recovery. However, travel and tourism, a critical industry, is lagging in terms of its recovery but the reopening of travel looks set to boost this and all eyes are on Dubai Expo 2020, which will be an important milestone within the travel sector’s recovery.”

PwC said that leading indicators from the third quarter of 2021 suggest economies in the region continue to build momentum and are now firmly on the road to return to pre-pandemic levels.

‘This coupled with robust purchasing managers indexes (PMI) across the region recording levels above 50-points showcasing economic expansion, recovery is undeniable. The PMI, one of the best proxies for non-oil private sector activity, reached a record level of 60.6 in Qatar in September and a 7-year high of 58.6 in Saudi Arabia, with the UAE reporting a third quarter average of 53.7, its strongest in over two years,’ the report said.

Flurry of IPO activity

Following a scarcity of initial public offerings (IPO) activity across exchanges in the GCC region, 2021 has seen a surge of major IPOs with Saudi Arabia and Abu Dhabi leading the pack.

The current shift shows growing confidence in the region, as a result of high oil prices and the COVID-19 recovery, together with high global equity valuations as well as the need for government entities to raise financing. Increased investor confidence and appetite is a positive indicator in trust in a continued economic recovery, PwC said.

Stephen Anderson, Middle East clients and markets leader at PwC, said, “Signs of recovery for the remainder of 2021 remain strong, with key leading indicators showcasing growth. As oil prices help rebalance fiscal budgets for GCC governments this will further support economic growth. The increasing activity of capital markets in the region, particularly around IPOs is testament to investor confidence and the growth potential of companies across the region.”

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