GCC Quarterly: 2017 Growth forecasts downgraded

Report highlights:

We expect compliance with the OPEC production cut deal to wane as we move into 2018 as there are few signs it has been successful in rebalancing markets, or that it will have more of an effect in the second half of 2017. A resumption of production growth by major MENA oil producers will be another hurdle for oil prices and we are revising lower our view for 2018 and the remainder of 2017.

OPEC’s decision to extend oil production cuts through to end-March 2018 has led us to revise down our expectations for oil sector growth – and thus real GDP growth – across the GCC.  The downward revision to our 2018 oil price forecast to USD 51 p/b has also widened the external and budget deficit forecasts for next year.

We now expect just 0.5% growth in Saudi Arabia this year, as the Kingdom has cut production by more than agreed with OPEC in Q1 2017, and has remained compliant in Q2.  We do expect oil production to rebound from Q2 2018 however, and this should boost overall GDP growth next year.

Non-oil growth in the UAE appears to have accelerated in H1 2017, based on PMI survey data.  However, with the oil sector now expected to contract y/y, we have downgraded our 2017 growth forecast to 2.0% from 3.4% previously.  We expect Dubai to grow at a faster rate than Abu Dhabi as it won’t be as affected by lower oil output.

Kuwait’s large oil sector, which accounts for more than half of total GDP, means that compliance with OPEC cuts for the whole of 2017 will push the economy into outright recession (-1.0%) despite robust non-oil sector growth.     

We have revised 2017 GDP growth forecasts for Qatar, Oman and Bahrain down to 2.5%, 1.0% and 2.2% respectively.  

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