According to EY's most recent Rapid-Growth Markets (RGMs) Forecast, the GCC can expect to see robust economic growth over the medium term and successful diversification of its local economies. The UAE's economy is expected to grow by 3.9%, Saudi Arabia by 4.3% and Qatar by 6.0% in the medium-term.
Bassam Hage, MENA Markets Leader, EY, says, "In the key Middle Eastern RGMs, a young population is helping to foster entrepreneurship and the growth of the non-oil sector is buoyant, protecting these economies from slower global oil demand. The economies in the GCC in particular are growing at a fast rate and over the medium-term, the further development of international trade flows and the expanding middle class are expected to fuel future growth. Rising FDI flows are helping to transform trade opportunities across Turkey, the Middle East and Africa, with particular expansion in financial services."
GDP in the MENA region is expected to grow by 3.0% in 2013, down from 3.7% in 2012. This decrease can be partly attributed to lower commodity prices and reduced demand for Middle East exports. The current political situation in Egypt is also continuing to impact economic activity across the region. Egypt's GDP is projected to rise by 1.7% in 2013 and 2.0% in 2014. More significant GDP growth is dependent on Egypt's political stability and consequent economic recovery.
The situation is very different in the GCC, particularly in the UAE, Saudi Arabia and Qatar. Growth in the United Arab Emirates is predicted to reach 4.1% in 2015, up from 3.3% in 2012. This increase will be driven primarily by the recovery of key sectors, including financial services and construction. The UAE has focused on diversifying its economy and concentrating on the non-oil sectors, with significant infrastructure projects planned in both Dubai and Abu Dhabi. Moreover, fiscal policy will remain accommodative in both Dubai and Abu Dhabi, with several infrastructure projects in the pipeline.
GDP growth in Saudi Arabia is projected at 4.3% in 2013 and 4.6% in 2014. These figures represent a slowdown from 6.8% in 2012, which can be attributed to reduced oil production, down by 3.5% in 2013. In contrast to developments in the oil sector, non-oil growth will remain robust in the next few years. Consumer spending will grow strongly, buoyed by fast growth in retail lending and a falling unemployment rate, particularly for males. Meanwhile, fiscal policy will remain supportive, with government spending forecast to rise by an average of 7.4% per annum across 2014-16.
Qatar also continues to demonstrate robust growth. The economy's focus has been on diversification in non-oil sectors such as manufacturing, construction, transport, communications, trade, hotels and government services, which are projected to increase by nearly 10% annually. The Qatari government has plans for massive infrastructural development, with 2013-2014 budgets showing an 18% increase in spending. These include the construction of the Hamad International Airport and a US$36 billion rail system in preparation of hosting the FIFA World Cup in 2020 and a rapidly expanding population.
"As the leading RGM economies mature, their economies will gradually rebalance. Growth will be moderate, and driven increasingly by production and services targeting domestic consumers. This trend can be seen in Saudi Arabia, where an economy founded upon oil exports is gradually developing a manufacturing sector, with growing numbers of businesses targeting the needs of a rich population of 27 million consumers. Strong FDI flows, easier access to credit and the growth of entrepreneurship is fuelling the development of new businesses and sectors within Middle Eastern RGMs and will helping to diversify economies," concludes Bassam.