Is the GCC facing another recession?

While business confidence in the GCC for 2017 is steadily climbing, a recent spate of uncertainty is weighing on growth prospects for the year ahead. The question on everyone’s minds: Are we in a period of market maturity or are we entering another recession?

With the price of oil volatile, the future of the eurozone still far from secure, travel bans and visa worries for Middle East travellers and concern around the pace of the slowdown in China, the confidence of business leaders, especially in the region, has slipped.

MENA economist Jean Michel-Saliba talks about the current macroeconomic issues faced by GCC countries in America Merrill Lynch’s GEMs Macro Monthly report.

Merrill Lynch expects non-oil real GDP growth to have bottomed out as the fiscal drag eases and infrastructure activity picks up.

 

Bahrain: Under pressure, but supported

The USD peg continues to be under pressure but that GCC support remains firm. Over time, the GCC is likely to require greater reforms from Bahrain to restore sustainability.

Economic diversification has helped as the key main sectors leading economic activity have been construction, real estate and onshore financial institutions while hospitality and manufacturing slowed down.

Major projects such as the new 400k bpd Saudi-Bahrain pipeline, the Sitra oil refinery, Aluminum Bahrain and Bahrain International Airport expansions are proceeding ahead and will support activity going forward.

A key catalyst going forward could be the approval of the 2017 and 2018 budgets. Authorities are currently debating the extent of fiscal consolidation with parliament. This has delayed approval.

The 2017-18 budgets are likely to be based on an oil price assumption of $50/bbl.

Building a safety net could take time, while fiscal consolidation needs are pressing. As the fiscal consolidation is to be implemented through budget laws, it will have to be debated and approved in parliament. This could cause delays or watering down of budgetary targets.

An IMF program is not being considered.

The recent Gulf tour of Bahrain’s Crown Prince Salman Al Khalifa to Saudi Arabia, Qatar, Kuwait and the UAE over February-March is positive in view of securing continued support. (Source credit – AME Info)

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