Publication: Gulf Economic Monitor, Issue 4: Building the Foundations for Economic Sustainability
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2019-05
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2019-05-07
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The economies of the GCC recovered in 2018 despite signs of weakness in the global economic outlook, reinforcing the perception that GCC economies' fortunes are still inextricably tied to oil. Global growth slowed in 2018, as trade tensions be-tween the U.S. and China escalated, and goods trade slowed markedly. However, the steady increase in oil prices until October 2018 lifted growth in the GCC economies, from an average of -0.2 percent in 2017 to 2.0 percent in 2018. Two of the region's largest economies Saudi Arabia and Kuwait, as well as Oman, emerged from recession in 2018. Growth outturns were driven by higher oil production in the second half of 2018, higher capital investment made possible due to the rise in oil revenues, and higher domestic demand. Fiscal and external balances improved, also tracking oil sector performance. GCC countries' fiscal balances improved in 2018, aided by the average increase in oil prices and progress with non-oil revenue mobilization in some countries. This allowed most countries to reduce fiscal deficits while actually increasing spending in some cases. Saudi Arabia, for example was able to halve its overall fiscal deficit in 2018 while simultaneously increasing total spending by 10.8 percent. Other countries also demonstrated procyclicality in fiscal policy, as spending increased across the GCC. Saudi Arabia and the UAE implemented a 5 percent VAT in early 2018, and Bahrain followed in early 2019. Oman introduced excise taxes on tobacco products, energy drinks and soft drinks in mid-2018 and increased corporate income tax.
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“World Bank Group. 2019. Gulf Economic Monitor, Issue 4: Building the Foundations for Economic Sustainability. © World Bank. http://hdl.handle.net/10986/31653 License: CC BY 3.0 IGO.”
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Accordingly, aggregate growth in GCC countries is expected to rise from 1.3 percent in 2017—the weakest pace since 2009—to 2.6 percent in 2019 supported by a gradual strengtheningof activity in the non-oil sector and as oil prices stabilize at close to current levels. Fiscal and current account deficits are also on the mend, but are unlikely to return to the double-digit surpluses of the commodity boom years.Publication Gulf Economic Update, December 2019(World Bank, Washington, DC, 2019-12-01)This edition of the Gulf Economic Update explores the links between economic diversification and environmental sustainability. The analysis highlights the need to integrate environmental sustainability and ecosystem resilience considerations into the decision-making process on the diversification paths and options in the GCC countries.
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