Gulf Cooperation Council: A real winner of the global economic headwinds?
After a slowdown in 2023 mainly due to lower energy production and prices, 2024 is expected to be a year of higher economic growth for the Gulf Cooperation Council (GCC) countries as, after several months of pessimism about global oil demand, prices have been on the rise since summer. With
tensions on the oil market likely to persist next year, Brent crude oil is expected to average USD 90 per barrel in 2024, after USD 85 per barrel this year.
However, the slight increase in oil prices will not benefit all of these countries equally. Bahrain and Oman will remain the two weakest links in terms of public accounts due to their high level of public debt, structural fiscal weaknesses and more limited natural resources compared with other countries in the region. Nevertheless, Saudi Arabia and the UAE, much less vulnerable, will in any case continue to help in case of emergencies when funding is in short supply. In Kuwait, the failure to pass a new debt law since the previous one expired in 2017 will continue to weigh on the government’s ability to tap into international capital markets to meet its financing needs. On the other hand, Qatar will benefit from greater room for manoeuvre and adjust the introduction of fiscal reforms at its own pace.
Although they still heavily depend on the oil sector, GCC countries implemented economic diversification plans following the drop in oil prices between 2014 and 2016. While the UAE have been at the forefront of economic diversification, Saudi Arabia has announced substantial investments in recent years. As these two countries, but also Qatar and Oman, are targeting almost the same sectors (construction, tourism, finance), the key risk resides in the creation of intra-competition within the region. Additionally, the main financing sources for these diversification strategies are based on oil revenues. Considering these two factors, economic diversification strategies, while feasible, may not yield the desired results.