GCC growth to pick up on rising crude output, govt spending: IIF

Real gross domestic product (GDP) growth in the GCC is expected to improve to 2.2 percent in 2018 from a contraction of 0.3 percent last year, driven by a substantial increase in public spending and a gradual increase in oil production, particularly in Saudi Arabia, Institute of International Finance (IIF) said in a new report.

The real GDP growth will rise to 2.7 percent in 2019, as the expansionary fiscal stance offsets the losses from monetary tightening, it added.

According to the report, higher oil prices this year have provided space for GCC authorities to boost government spending after three years of fiscal consolidation.

In Saudi Arabia, the expected 18 percent increase in government spending, combined with the large private sector stimulus, will boost non-oil growth. 

In the UAE, Abu Dhabi's three-year $13.6 billion stimulus package and Dubai's several investment initiatives will help boost growth to 2.1 percent in 2018 and 2.7 percent in 2019 from  0.8 percent in 2017.

Meanwhile, the pressures on GCC currencies in the forward market have eased, unlike several emerging markets currencies.

"These reflect higher oil prices and stronger fundamentals in the GCC including low debt and large financial buffers in the form of official reserves and SWFs. In this setting, we see no significant pressure on the peg against the dollar," the report noted.

Additionally, key policy rates have increased by 25 basis points in Saudi Arabia, the UAE and Bahrain following the recent hike in the US.

The Saudi Arabian Monetary Authority raised its repo and reverse repo rates to 2.5 percent and 2 percent, respectively.

"GCC policy rates will be raised further in the period ahead as US rates continue to rise. We expect another two rate hikes, each of 25 basis points, for the rest of this year and three hikes in 2019," IIF said.

“The monetary policy remains focused on preserving the currency pegs to the dollar,” it added.