Economic growth in the Gulf Cooperation Council (GCC) was significantly weakened in 2019 due to muted oil prices and excess oil supply, according to the new World Bank’s Gulf Economic Update released today. As a result, overall real GDP growth in the GCC is estimated to drop to 0.8% this year compared with 2% last year. While most GCC countries retained strong external positions in 2019, the ongoing slowdown in China and the continued global trade war are hindering their efforts to boost non-oil exports. Meanwhile, resurgent geopolitical risks are raising risk perceptions, which could hurt prospects for investment.
This issue of the Gulf Economic Update, titled “Economic Diversification for a Sustainable and Resilient GCC”, explores ways in which GCC countries can pursue diversification that is environmentally sustainable and resilient to global megatrend. Many countries in the region have pursued ‘traditional diversification’, meaning diversifying away from hydrocarbon production but towards heavy industries that still depend on fossil fuels. The emissions-intensive nature of ‘traditional diversification’ has increased the GCC countries’ exposure to disruptive low-carbon technologies, international policy efforts to address climate change, and negative public perceptions of fossil fuels and their derivatives.
“As GCC countries strive to diversify their economies, they should ensure that diversification strategies are aligned with environmental sustainability goals,” said Issam Abousleiman, World Bank Regional Director for the GCC. “Ensuring that the Region’s diversification efforts are climate-friendly is critical not only for environmental sustainability but also to help the GCC invest in sources of growth that are resilient to global technology and policy impacts.”
The report suggests three ways to help align diversification strategies to environmental sustainability objectives.
First, ensuring that diversification strategies take an ‘asset diversification’ approach; one that moves beyond the concept of diversifying output and broadens the composition of a country’s national wealth to include human capital, in addition to natural and produced assets.
Second, GCC countries can hedge the risks of traditional diversification by liberalizing energy and water prices, scaling up investments in renewable energy and carbon capture and storage to help mitigate the impacts of climate change. Energy subsidy reform and increased investment in renewable energy are already underway in the Gulf.
Third, the GCC must establish effective environmental management institutions and practices to ensure that the region protects its fragile ecosystem and reduces environmental cost of industry as it invests heavily in new sources of economic growth.
GCC Countries Outlook
Bahrain: Bahrain’s economy is expected to grow at a moderate rate of 2% in 2019 and average 2.3% over 2020-21, driven by the non-oil sector. Nonoil GDP growth will be driven by an increase in manufacturing output and higher levels of infrastructure spending.
Kuwait: Kuwait’s growth rate is expected to dip to 0.4% in 2019 before picking up to 2.2% in 2020, as the OPEC production cuts expire, and 2% in 2021, as the government increases spending on oil capacity enhancements and infrastructure to boost the non-oil sector.
Oman: Oman’s growth rate is projected to accelerate from an estimated 0% in 2019 to 3.7% in 2020 and 4.3% in 2021, supported by rising natural gas production. The potential boost from the diversification investment spending would continue supporting growth in the medium term.
Qatar: Qatar’s economy is projected to grow by a modest 0.5% in 2019 before accelerating to 1.5% in 2020 and 3.2% in 2021. Growth will be driven by a boost in gas production as the new Barzan Project starts operations as well as by the non-oil sector supported by the government’s investment program targeting infrastructure and real estate.
Saudi Arabia: GDP growth rate will likely slow to 0.4% in 2019 driven OPEC’s oil supply reduction drive, before rising to 1% in 2020 and 2.2% in 2021.
United Arab Emirates: GDP growth rate is projected to stabilize at 1.8% in 2019, before accelerating to 2.6% in 2020 and 3% by 2021, driven by government stimulus and a boost from hosting Expo 2020.