DUBAI (Reuters) — Economic activity in the Gulf will contract sharply this year before recovering in 2021, hit by the double shock of the coronavirus pandemic and an oil price crash, a quarterly Reuters poll showed on Tuesday.
Analysts in the July 7-20 poll see a deep economic contraction in the hydrocarbon-producing region this year as oil prices were hit on the supply and demand sides simultaneously.
Saudi Arabia’s GDP was seen shrinking 5.2 percent this year before rebounding to 3.1 percent growth next year. A similar poll conducted three months ago saw the region’s biggest economy and world’s largest oil exporter growing one percent in 2020 and two percent in 2021.
In March, a Saudi-Russian price war caused oil prices to plummet, and the Organization of the Petroleum Exporting Countries and its allies subsequently implemented output cuts.
“Three months ago, most forecasts didn’t yet factor in the oil production cuts or the full extent of the COVID-19 fallout,” said Maya Senussi, senior economist at Oxford Economics, adding that limiting the hajj pilgrimage, an important source of tourism revenue, also weighed on Saudi Arabia’s outlook.
Kuwait’s GDP was seen shrinking the most out of the six Gulf Cooperation Council (GCC) members, contracting 6.1 percent in 2020 before growing 2.5 percent next year. Three months ago, it was seen shrinking 2.9 percent in 2020 and growing two percent next year.
Medians forecast a 5.1 percent contraction for the United Arab Emirates’ economy this year and 2.6 percent growth in 2021. Three months ago, they expected the economy to shrink 0.4 percent this year.
Tourism, a major source of revenue for the emirate of Dubai, has been hit hard by lockdown measures and travel restrictions.
“We expect revenues for the tourism and hospitality sectors to be under particular pressure given an expected sharp decline in the visitor numbers,” S&P Global Ratings said in a research note, adding that it continues to observe “broad-based pressures across various sectors” in the GCC.
Qatar, Oman and Bahrain’s outlooks also worsened for this year, with analysts expecting their economies to shrink 4.0 percent, 4.7 percent and 4.4 percent respectively. Their growth outlooks for 2021 improved from expectations three months ago.
“While activity is now picking up across much of the region as lockdown restrictions are relaxed, the pace of recovery in H2 and beyond may disappoint, particularly with the coronavirus set to linger,” Oxford Economics said in a research note.
By Yousef Saba
Reporting by Yousef Saba; Polling by Md Manzer Hussain, Shaloo Shrivastava and Tushar Goenka; Editing by Mark Heinrich