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GCC countries to benefit from economic diversification

GCC economy

Medium-term growth will be strong, especially in the UAE, Saudi Arabia and Qatar.

October 9, 2013 10:34 by

The UAE economy is expected to grow by 3.9 per cent, Saudi Arabia by 4.3 per cent and Qatar by 6.0 per cent in the medium term, according to Ernst & Young’s (EY) latest Rapid-growth markets (RGMs) forecast.

The Mena region’s GDP is expected to grow by three per cent in 2013, down from 3.7 per cent in 2012. This decline can be partly attributed to lower commodity prices and reduced demand for Middle Eastern exports. The current political situation in Egypt is also continuing to impact economic activity across the region. Egypt’s GDP is projected to rise by 1.7 per cent in 2013 and two per cent in 2014, although this is dependent on the country’s political stability and consequent economic recovery.

“In key Middle Eastern RGMs, a young population is helping to foster entrepreneurship and the growth of the non-oil sector is buoyant, thus protecting these economies from a reduced global oil demand,” says Bassam Hage, MENA markets leader at EY.

“The economies in the GCC region, in particular, are growing at a faster rate. In the medium term, the further development of international trade flows and expanding middle class are expected to fuel future growth. Rising FDI flows are helping to transform trade opportunities across Turkey, the Middle East region and Africa, with particular expansion in financial services.”

Growth in the UAE is predicted to reach 3.9 per cent in 2015, up from 3.3 per cent in 2012. This increase will be driven primarily by the recovery of key sectors, including financial services and construction. The UAE has focused on diversifying its economy and concentrating on the non-oil sectors, with significant infrastructure projects planned in both Dubai and Abu Dhabi.  Fiscal policy will remain accommodative in both Dubai and Abu Dhabi, with several infrastructure projects in the pipeline.

GDP growth in Saudi Arabia is projected at 4.3 per cent in 2013 and is expected to reach 4.6 per cent in 2014. These figures represent a decline from 6.8 per cent in 2012, which can be credited to reduced oil production, down by 3.5 per cent in 2013. In contrast to developments in the oil sector, non-oil growth will remain robust in the next few years. Consumer spending will grow strongly, buoyed by fast growth in retail lending and a falling unemployment rate, particularly for males. Meanwhile, fiscal policy will remain supportive, with government spending forecast to rise by an average of 7.4 per cent per annum in 2014 to 2016.

Qatar also continues to demonstrate robust growth. The economy’s focus has been on diversification in the non-oil sectors, such as manufacturing, construction, transport, communications, trade, hotels and government services, which are projected to increase by ten per cent annually. The Qatari government has plans for massive infrastructural development, with 2013-2014 budgets showing an 18 per cent increase in spending. These include the construction of the Hamad International Airport and a US$36 billion rail system in preparation of hosting the FIFA World Cup in 2022 and a rapidly expanding population.

“As the leading RGMs mature, their economies will gradually rebalance. Growth will be moderate, driven by an increase in production and services targeting domestic consumers,” adds Bassam.

“This trend can be seen in Saudi Arabia, where an economy that was founded on oil exports is gradually developing a manufacturing sector, with growing number of businesses targeting the needs of a rich population of 27 million consumers. Strong FDI flows and the growth of entrepreneurship is fuelling the development of new businesses and sectors within Middle Eastern RGMs – which will help to diversify economies,” he concludes.

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