Muscat – On the back of higher oil prices, increased oil production and robust momentum in non-oil economic activity, the GDP growth in the GCC countries will see a surge of 6.1 per cent in 2022, according to one of the world’s leading financial services groups.

This growth in 2022 will be the fastest pace of cyclical expansion in the GCC countries since 2011 and is higher than other emerging markets peers, Tokyo-based Mitsubishi UFJ Financial Group said in a research report last week.

According to Ehsan Khoman, head of Mitsubishi UFJ Financial Group’s EMEA emerging markets research team, a supportive oil market, robust momentum in non-oil activity, stronger balance sheets, and easing geopolitical tensions are driving a compelling GCC story in 2022.

The GCC authorities’ unabated drive to realise their National Vision strategies of structural transformation away from hydrocarbons will also continue to gain traction, he said.

Khoman further explained, “The GCC countries’ 2022 outlook is markedly skewed to the upside this year. The robust vaccination programme, ongoing re-openings and higher oil prices as well as production, is spurring a real GDP growth forward in the region.”

Following several years of having fiscal deficits, the GCC countries will rebuild their buffers in 2022, he noted.

“Higher government revenues and the rationalisation of expenditure in 2022 budgets will strengthen the countries’ balance sheets and offer greater fiscal capacity to navigate towards a post-pandemic equilibrium,” Khoman added.

Surplus to hit US$27bn

This improved situation will lead to an aggregate GCC fiscal surplus in 2022 of US$27bn, the first since 2014, Mitsubishi UFJ Financial Group noted.

It added that the surge in oil prices and austerity measures will support sovereign balance sheets, with the GCC’s financing needs remaining limited at only US$2.8bn in 2022 and its debt capital markets’ needs at only US$4.8bn.

According to the report, the economic growth in the GCC will also outperform all emerging market peers in 2022, except Asia.

Saudi Arabia and the UAE, it said, will be leading this recovery, given their impressive bounce back in non-oil GDP, a rebound in their domestic demand, their higher investment levels in line with National Vision strategies, as well as being best-positioned to respond to the global economic recovery.

GCC inflation is rising

According to the Mitsubishi UFJ Financial Group’s report, the GCC inflation has not been immune from sharply higher inflation levels across most economies with Qatar being pressured the most.

Higher GCC inflation, it said, has the risk of reversing capital flows, driving sovereign spreads higher and squeezing public financing.

‘Notwithstanding the notable increases in import prices in recent months, the GCC inflation has so far remained moderate, reflecting lower non-tradable inflation, as demand for non-tradables remains subdued,’ the report said.

It further noted that the GCC inflation is much more subdued than elsewhere in the emerging and developed world.

‘Even in Qatar, where annual inflation of 6.1 per cent in November was the highest in the region, the annual gains reflect the low base after three years of deflation rather than underlying price pressures with average inflation for the previous 12 months close to zero,’ Mitsubishi UFJ Financial Group said in the report.