Oil @ $80 to boost GCC GDP

UAE's GDP at current market prices will increase from $369 billion last year to $398.8 billion in 2018 and $411.3 billion in 2019

United Arab Emirates, May 29, 2018

The GCC economies are expected to perform better following the recent surge in crude prices, analysts have said.

Last week, oil hit a high of $80 per barrel, which would increase revenues, improve fiscal and current account positions and boost nominal gross domestic product (GDP) growth of the Gulf economies, they said.

Monica Malik, chief economist, Abu Dhabi Commercial Bank (ADCB), said increase in oil revenues will be positive for the GCC's fiscal and current account positions and it will also boost nominal GDP growth of the UAE and Kuwait by realising small fiscal surpluses in 2018.

She noted that if the oil price remains at the current level, there could be some additional increase in government spending - above current forecasts, on infrastructure and other public sector projects.

The ADCB Research predicts that the UAE's GDP at current market prices will increase from $369 billion last year to $398.8 billion in 2018 and $411.3 billion in 2019.

Similarly, the UAE will post budget balance of 0.9 per cent of GDP in 2018 and 0.1 per cent in 2019 while current account will increase from 4.3 per cent last year to 5.6 per cent this year and will drop to 3.9 per cent in 2019.

In Saudi Arabia, GDP will increase from $683.8 billion in 2017 to $737.5 billion in 2018 and $773.1 billion next year. While current account will increase from 0.9 per cent in 2017 to 5.5 per cent this year but will slip to 3.2 per cent in 2019. Similarly, budget balance deficit will shrink from 9 per cent of GDP in 2017 to 7 per cent this year but will increase again to 7.6 next year due to slip in oil prices expected in 2019.

Malik said there could be some downside pressure to real oil GDP growth forecasts for 2018 if the GCC countries continue to produce oil at their first quarter of 2018 levels. Its current assumption is for steady annual production in 2018 at the 2017 levels. Some countries, such as Kuwait, Saudi Arabia and the UAE, lowered their output in first quarter of 2018.

Crude oil prices slid below $80 per barrel on the weekend after Saudi Arabia and Russia said Opec and its allies may boost output in the second half of this year. Brent crude futures stood at $75.35 a barrel at 0913GMT while US West Texas Intermediate crude futures were traded at $66.69.

'Even in this event, we still see a solid rise in the GCC oil revenue with the higher oil price,' Malik added.

Emirates NBD also revised oil prices forecast higher with Brent averaging around $69 per barrel this year.

'Prices should begin to taper off slightly by the end of the year even with a relatively wide deficit as we think the risk of a broader slowdown in global growth will become more apparent by the end of 2018,' Khatija Haque, head of Mena Research, said in a note.

Oil to remain volatile

MR Raghu, managing director, MarmoreMena Intelligence, believes that oil prices could exhibit significant volatility going ahead due to US withdrawal from Iranian nuclear deal, exacerbated situation by the fall in output from Venezuela and constraints in US production growth.

International Monetary Fund has cut its 2018 oil GDP growth forecasts for most GCC countries, citing the medium-term outlook for oil prices remained highly uncertain and subdued despite the upward revision of oil price assumptions for 2018.

According to IMF, oil prices are expected to average $62 a barrel in 2018, which is below the level most GCC governments need to balance their budgets, this will keep their public finances in deficit.

According to Raghu, some of the factors exerting upward pressure on oil in the coming months would be continued pipeline constraints and infrastructure bottlenecks faced by US Shale production, geopolitical tensions in several producing nations, and US withdrawal from the Iran nuclear deal and reimposed restrictions on Iranian oil exports. While, the downside risks to oil prices are, potential weakening in compliance in the Opec/non-Opec production cuts or outright termination of the accord, growing oil production from Libya and Nigeria, and faster-than-anticipated US shale production.

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