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MANAMA: Bahrain is set to be the fastest growing economy in the Middle East this year, amidst increasing signs that a regional recovery is underway, according to a report commissioned by the Institute of Chartered Accountants in England and Wales (ICEAW).
Compiled by Oxford Economics, the latest quarterly economic forecast for the region by the ICAEW estimates the kingdom’s real GDP growth at around three per cent this year.
Meanwhile, the regional GDP is seen growing by 2.4pc this year, only 0.1 percentage points (pp) lower than the institute’s projection three months ago and similar to the average growth trajectory in the last decade.
The GCC GDP will grow by 2.1pc this year (up 0.5pp compared with three months ago), after the 5pc contraction in 2020, as per ICAEW calculations. It estimates the Middle East economy shrank by 4.4pc in 2020.
The report notes increasing signs that an economic recovery is underway, although the Middle East continues to face challenges posed by the Covid-19 pandemic, with many virus-related restrictions remaining in place.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA), said: “The outlook for most Middle Eastern economies looks positive this quarter, but keeping coronavirus levels low will be essential to ensure economies can return to growth. Governments across the region must keep developing sectors and industries that foster innovation, and continue implementing reforms to diversify economies and accelerate them into the post-Covid era.”
Noting that the economy still has a lot of ground to make up before it reaches its pre-pandemic level, the ICAEW says it remains relatively upbeat about the pace of recovery in H2 and beyond even as the GCC region takes time to heal with oil production cuts weighing on output and new outbreaks forcing tighter lockdown measures in recent weeks to disrupt the recovery process.
The financial professionals’ assessment of growth accelerating in the coming months, boosted by rapid vaccine roll-outs in several countries that will help domestic activity move back towards normality – is supported by strong readings in the purchasing managers’ index (PMI) – a measure of the prevailing direction of economic trends in the manufacturing and service sectors.
Against this backdrop, the region’s economies are in a good position to capitalise on pent-up demand for travel when the rest of the world opens up, says the ICAEW.
The global demand picture has continued to improve, supporting the outlook for oil prices and trade.
Although global Covid-19 cases are still high and new outbreaks are possible, the pandemic looks to be under control and with the summer tourist season approaching, oil demand is trending up.
This, alongside ongoing supply restraint by Opec+ producers, has stabilised the oil price at above $65 per barrel.
The institute forecasts Brent to average $61pb through 2022 and 2023.
Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, said: “The rise in the oil price has boosted revenue prospects for GCC producers, which derive 40-90pc of total fiscal income from oil. Higher oil revenue gives governments more scope to support post-pandemic recoveries without undermining efforts aimed at improving medium-term fiscal sustainability. Higher budget spending would potentially result in faster expansion in GCC non-oil activity this year than the 3pc we currently expect.”
Preparation for various regional events, such as Expo in the UAE and World Cup 2022 in Qatar, an easing of regional tensions and spending by the Saudi Public Investment Fund (PIF) will also support growth, says the report.
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