GCC Economies Hit By Crude Oil Price Dive

GCC Economies Hit By Crude Oil Price Dive

$OIL

The UAE and Saudi Arabia have fared better than their GCC counterparts because of economic diversification, says report

Lower Crude Oil prices have impacted economic growth in the Gulf Cooperation Council (GCC) countries, a report by global trade credit insurance provider Coface has found.

The GCC economies are set to grow by around 3.4% this year and 3.7% in Y 2016 – lower than previous years, it stated.

“While these rates are considered high compared to other emerging markets, they remain below the region’s average growth rate of 5.8% between Ys 2000 and 2011,” the report said.

The 6 Gulf countries currently hold 30% of the world’s proven Crude Oil reserves with Saudi Arabia accounting for 15.7%, Kuwait for 6% and the United Arab Emirates (UAE) for 5.8%.

Together, they produced 28.6-M BPD of Crude Oil in Y 2014, equivalent to 32.3% of total global production.

Oil prices have fallen from around 114 bbl in June 2014, to around 46 bbl in this year, dampening GCC government revenues.

However, the report also clarified that not all markets have reacted in the same way. The decline in Crude Oil prices affected Oman and Bahrain the most, whereas Saudi Arabia, UAE, Kuwait and Qatar fared better.

“The more resilient economies benefit from strong macroeconomic fundamentals, such as more diversification, solid financial buffers and greater integration with world trade. The developed manufacturing and service industries in these markets allow less dependence on oil revenues,” the report added.

The UAE has aggressively diversified its economy, with hydrocarbon revenues accounting for only 25% of GDP, and 20% of total export revenues.

The country’s economy grew 4.6% in Y 2014 and is forecast to grow 4% in Y 2015 and 3.8% in Y 2016, the report said.

Saudi Arabia, which depends on the oil sector for 80% of its export revenues and around 85% of its budget revenues, is also speeding up its diversification process.

The kingdom posted a GDP growth rate of 3.5% in Y 2014, with the economy slated to rise by 2.5 and 3% in Y’s 2015 and 2016 respectively.

“As oil continues to be a major contributor to economic performance in the GCC, economic diversification is a vital for Gulf countries to ensure continued healthy growth,” said Coface’s MENA region economist Seltem Iyigun.

“This has been showcased in Saudi Arabia and the UAE, which are driving sustained GDP growth through significant government investment in non-Oil sectors. In the UAE, the food and beverage sector is forecast to grow by 36% between Y’s 2014 and 2019, while KSA’s automotive industry is slated to rise by 5.2% in Y 2015.”

He added: “In view of these growth figures, Saudi Arabia and UAE are setting a positive example of the importance of diversified economies as a means to offset the impact of lower Oil prices, promote growth and avoid a fiscal deficit.”

By Aarti Nagraj

Paul Ebeling, Editor

HeffX-LTN

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