Business

Relaxation leads to a strong recovery in the economies of the Middle East

Dubai: Confidence in the Middle East has strengthened in recent months as coronavirus restrictions eased and vaccination progress progressed, according to the latest Middle East Economic Insight report compiled by Oxford Economics. Although there are positive signs of recovery in the second half of this year and beyond, economies remain far from their pre-pandemic levels. According to the report compiled by ICAEW, the Middle East’s local GDP will grow by 2.4 percent this year, a similar pace as the region’s average growth path over the past decade, and an improvement of the 4.4 percent that it shrank in 2020. The reduction in oil production outweighs production and new COVID-19 outbreaks have forced stricter closure measures in recent weeks, disrupting the recovery process. Strong Reading Index (PMI) indicates that growth will accelerate in the coming months, complemented by the rapid vaccination of vaccines in several countries that will help move domestic activity to normal. “The outlook for most Middle Eastern economies looks positive this quarter, but keeping coronavirus levels low will be essential to ensure that economies can grow again,” said Michael Armstrong, FCA and ICAEW Regional Director for the Middle East. East, Africa and South Asia (MEASA) said. ). “Governments across the region must keep developing sectors and industries that foster innovation, and continue to implement reforms to diversify and accelerate economies into the post-COVID era.” The economies in the region are in a good position to take advantage of the increase in travel demand as the rest of the world opens up. Preparing for various regional events, such as Expo 2020 in Dubai and the FIFA World Cup in 2022 in Qatar, a easing of local tensions and spending by the Saudi Public Investment Fund (PIF) will also support growth. Overall, GCC GDP will grow by 2.1 percent this year, after the 5 percent contraction seen in 2020. Although global cases of COVID-19 are still high and new outbreaks are reported daily, the pandemic appears to be under control in China, Europe and the US. And as the summer tourist season approaches, the demand for oil increases. This, coupled with continued supply reductions from OPEC + producers, stabilized the oil price above $ 65 per barrel (pb), and $ 64.4pb for Brent crude oil in 2021, compared to $ 62. large room for stronger supply growth, however, oil prices will be limited to 2022 and 2023, and the report predicts that Brent will average $ 61 per US during that period.

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Impact of climate change

Given the large dependence on the oil sector for growth and the vulnerability of countries to rising temperatures, climate change is also an increasingly important issue in the GCC region and is gaining a sharper focus on diversification plans in countries such as Saudi Arabia and the UAE. . The Green Initiative of Saudi Arabia, for example, aims to reduce CO2 emissions in the Middle East by 60 percent by 2030 and start generating half of the country’s electricity from renewable energy. As many sectors, including a large part of industry and even travel and tourism, are relatively oil-intensive, the authorities acknowledge that they cannot proceed as usual as they will be exposed to international policies to tackle climate change such as carbon tax and carbon adjustment. “The rise in the oil price has increased the revenue outlook for GCC producers, who derive 40-90 percent of the total fiscal revenue from oil. Higher oil revenues give governments more room to support pandemic recovery without undermining efforts to improve medium-term fiscal sustainability, ”said Scott Livermore, ICAEW economic adviser and chief economist at Oxford Economics. ‘Climate change is a major risk for the economy and society. Without a significant expanded mitigation effort, the MENA region, which is already plagued by climate-related issues such as water scarcity, is likely to have major economic consequences that could have an economic impact by 2050. ‘ The Economic Insight report also outlined a significant increase in growth prospects in Iran due to the possible return to the Joint Comprehensive Plan of Action (JCPOA) and the lifting of sanctions. Although its economy would only regain its size before the sanctions in 2023, an increase in oil exports would significantly increase GDP growth over the next few years, with a positive impact in the oil and non-oil sectors.