A robust non-oil sector will drive growth in the GCC in 2024, buoyed by continued investment in tourism as oil exporting countries push ahead with ambitious economic diversification programmes.
The regional outlook by the Dubai-based lender EmiratesNBD highlighted that while government expenditure will likely remain modest in 2024, compared to the last few years, cuts in spending or a tightening in fiscal policy through higher taxes was not expected, other than those already announced such as the UAE’s corporate income tax, which came into effect in 2023.
Additionally, economic and social reforms were likely to support continued private sector investments, while furthering growth in the expatriate population, particularly in Saudi Arabia and the UAE. Rate cuts from the US Federal Reserve, expected in H2 2024, should also boost demand for credit and support investment and consumption, the research highlighted.
Tourism is expected to remain a key driver of economic growth in the region in 2024, with the return of visitors from China following the lifting of COVID-19 travel restrictions, and the growth of the tourism sectors in the UAE and Saudi Arabia.
In 2022, the contribution of the travel and tourism sector to the UAE’s GDP was nearly 167 billion dirhams, equivalent to 9% of the total GDP, according to the Ministry of Economy. The total spending of international tourists amounted to AED 117.6 billion ($45.5 billion) in the same year. Figures for 2023 have yet to be released.
Similarly, Saudi Arabia has been heavily investing in its tourism sector, as part of its Vision 2030 drive, with the country’s Minister of Tourism Ahemed bin Aqeel Al Khateeb announcing in October that the kingdom was investing more than $800 billion in the sector through giga-projects such as the Red Sea tourism, Diriyah and Qiddiyah developments, among others.
Meanwhile, oil GDP in the GCC will remain a drag on headline GDP growth in 2024 with oil prices expected to average $82.5/b this year, similar to 2023.
Road ahead
The research highlighted that the disinflation trend is expected to continue in 2024, with average Consumer Price Index (CPI) inflation for the GCC forecast at 2.6% this year, down from 2.8% in 2023 and 3.5% in 2022.
Meanwhile, the budget surpluses of 2022 narrowed sharply last year on oil production cuts and lower oil prices, while spending increased. With little rebound in oil revenues expected in 2024, governments will need to rein in spending growth to prevent budget balances shrinking further.
The EmiratesNBD outlook expects Saudi Arabia to run a deficit of -4.3% of GDP this year, up from -1.9% in 2023, as ambitious development plans will require continued investment spending. Bahrain and Kuwait are also likely to run small deficits this year, but Oman, the UAE and Qatar are expected to record surpluses.
Overall, sovereign balance sheets in the GCC are much stronger than a few years ago, according to the outlook, with lower public debt and healthy FX reserves, which should allow governments to tap capital markets at attractive rates.
Globally, growth is expected to slow slightly to 2.9% from 3.0% in 2023 as tight monetary policy continues to weigh on demand and investment, particularly in the first half of the year. This scenario is consistent with softer demand for oil, particularly in the advanced economies.
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