ICAEW Q3 2024 Economic Update: Reversal of Oil Cuts to Fuel GCC Growth in 2025

TDT | UAE

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The latest ICAEW Economic Insight report for the Middle East, prepared by Oxford Economics, paints a cautiously optimistic outlook for the region. While economic growth in the Middle East is projected at 2.1% in 2024, a significant acceleration to 3.7% is expected in 2025, largely driven by the reversal of oil production cuts by OPEC+.

GCC growth to surge in 2025

The GCC region is poised for a significant rebound, with growth projected to more than double to 4.4% in 2025 as oil production cuts are gradually phased out. The report highlights the resilience of the GCC's non-energy sectors, which are expected to expand by 4.4% in 2025. Strong domestic momentum, coupled with anticipated interest rate reductions, is expected to fuel consumption and private investment, boosting the region's overall economic outlook.

2024 growth impacted by oil production cuts

The extension of oil production cuts by OPEC+ has led to a slight downward revision of the GCC's 2024 growth forecast to 2.1% from 2.2% three months ago. While this reflects the temporary impact on the region’s energy sector, the outlook for 2025 remains optimistic as oil production increases, providing a strong boost to the region's economies.

Non-energy sectors show resilience

The report underscores the resilience of GCC non-energy sectors, which are projected to grow by 4.2% this year and 4.4% in 2025. Recent PMI readings suggest strong domestic activity, and anticipated interest rate reductions is expected to further bolster consumption and private investment. These sectors, including tourism, trade, and finance, are becoming crucial growth drivers in the region’s economic diversification efforts.

Kuwait faces challenges amid oil cuts

Kuwait's economy is forecast to grow by only 0.5% due to ongoing oil production cuts, but is expected to rebound to 2.5% in 2025-26. The recent discovery of the Al-Nokhatha oil field, with estimated reserves of 3.2 billion barrels, promises higher future oil gains and supports Kuwait's agenda to expand production output to 4 million barrels per day by 2035.

Oman's public finances remain resilient

Oman's economy is projected to achieve a growth rate of 1.5% in 2024, supported by a resilient non-energy sector. Growth is expected to gain further traction, reaching 2.3% in 2025, as oil production restrictions are eased. Oman's public finances remain robust, with a budget surplus expected despite lower energy revenues. The country's commitment to fiscal reforms and diversification efforts has been recognised by Moody's, which recently upgraded Oman's Ba1 credit rating to positive.

Geopolitical risks remain

The report highlights ongoing geopolitical risks, particularly regional conflicts, which could impact sectors linked to tourism and trade, and adds a layer of uncertainty to the forecast. However, a potential breakthrough in nuclear talks with Iran offers some upside potential for oil production and exports in the medium term.

Inflation outlook

The GCC inflation forecast for 2024 has been lowered to 1.7%, but is expected to rise to 2.1% next year. Inflation remains below 2% in all GCC countries except Kuwait and the UAE, where slightly higher rates persist due to housing price pressures.

Hanadi Khalife, Head of Middle East, ICAEW, said: “The report underscores the importance of resilience in navigating global economic and regional geopolitical headwinds. We are confident that the Middle East's business community, supported by the expertise of the accountancy profession, will continue to demonstrate its ability to innovate and thrive amid these challenges.”

Scott Livermore, ICAEW Economic Advisor, and Chief Economist and Managing Director, Oxford Economics Middle East, said:“The GCC’s proactive and strategic investment in non-oil sectors, alongside the gradual recovery of oil production, is paving the way for robust growth in 2025, projected to more than double to 4.4%. In a global environment of slowing economic growth, the resilience of the GCC stands out. The region’s strong performance across both energy and non-energy sectors—particularly in tourism, trade, and finance—positions it for sustained success in the coming year.”

Despite ongoing challenges, the latest ICAEW Economic Insight report paints a positive picture for the region's economic prospects in 2025, driven by the reversal of oil production cuts and continued strength in non-energy sectors.