Growth in the Middle East has slowed but the region is still outperforming much of the world, according to ICAEW's latest quarterly report.
With much of that growth driven by high oil prices and government infrastructure spending, countries will risk seeing their finances stretched unless they continue to diversify their economies.
The ICAEW report Economic Insight: Middle East is produced by Cebr (The Centre for Economics and Business Research), ICAEW's partner and forecaster. Commissioned by ICAEW, the report provides its 138,000 members with a current snapshot of the region's economic performance.
The report shows that countries in the GCC are set to record robust growth of 5.6 per cent in 2012. Although this is down from 7.4 per cent last year, it is still significantly higher than some emerging Asian economies.
"Given that some parts of the world have actually shrunk over 2012, growth of over 5 per cent is great news for the region. Dubai is leading the way by investing in jobs, education and skills and becoming a global business center," said Peter Beynon, ICAEW Regional Director, Middle East.
He added: "But more needs to be done if the GCC countries are going to become knowledge and skills led instead of purely relying on hydrocarbons. Economic diversification will take a long time to achieve, which is why it is important that governments and business intensify their efforts."
The report undertakes a quarterly review of the Middle East focusing on GCC member countries (UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), plus Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).
The reported progress is mostly driven by continued high oil prices, government investment in infrastructure and expenditure on public services including public sector salary hikes that have boosted consumer spending. The conclusion reached is that oil prices must stay at elevated levels in order to adequately fund government commitments.
On the other hand, according to Saxo Bank, the Gulf Cooperation Council bloc is expected to grow 4% in 2013, mostly aided by high oil prices, tourism and a stable housing market, says Peter Garnry, an equity strategist at the Bank.
Adds that the Arab Gulf financial sector "is way better capitalized than Europe, and is able to absorb short term turbulence if it should come." Says the GCC states' "current policy to diversify the income stream away from oil," would be successful over time.
Emirates 24|7, Dow Jones Newswires