The rollout of coronavirus vaccines should allow a return to relative normality in the Middle East in the second half of 2021, while much of the region’s economies will benefit from higher commodity prices and stronger external demand, according to a report Economic Update: Middle East Q1 2021, compiled by Oxford Economics and commissioned by ICAEW
According to the Economic Update report, the Middle East’s GDP forecast for this year stands at 2.5%, similar to the average pace from 2010 to 2019 (2.6%). This follows the unprecedented decline seen in 2020, estimated to be 5.2%.
The report observed that 2021 has got off to a slow start for the global economy due to containment measures aimed at bringing COVID-19 numbers under control. Likewise, countries in the Middle East have had to clamp down, imposing restrictions on travel and their domestic economies to curb the spread of the virus.
The vaccine rollout has been uneven but has progressed particularly well in the UAE and Bahrain, where a relatively large percentage of the population has been vaccinated compared to neighbouring countries and global peers. Overall, according to ICAEW, GCC GDP will grow by 1.4% in 2021, after an estimated 5.4% contraction in 2020.
Expectations of strengthening activity and rising demand have lifted sentiment, pushing oil prices up to US$66 per barrel (pb) in late February (up from a low point of US$9 pb in April 2020). The oil price outlook has also been supported by ongoing supply restraint from OPEC+ producers. The group plans to increase output only modestly in the months ahead, to sustain a reduction in inventory levels, with Saudi Arabia maintaining an additional voluntary production cut of 1m barrels per day through April.
Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia (MEASA), said, “While COVID-19 vaccine rollouts are underway, Middle Eastern governments must continue to develop sectors and industries that generate net value for the economy. Increasing non-oil revenues is a challenging task in these times so innovation will be vital to the region’s economic recovery.”
Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, added, “In the first quarter of 2020, the COVID-19 pandemic brought Middle East economies to a temporary standstill. Today, we are encouraged by the steps regional governments are undergoing to bring back normalcy. However, the continued uncertainty in the global market puts more pressure on the oil-reliant economies to increase their non-oil revenues. Governments must remain proactive and continue to support their economies with pro-growth initiatives to bounce back quickly.”
