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% this year before rebounding to 3.1% growth next year. A similar poll conducted three months ago saw the region’s biggest economy and world’s largest oil exporter growing 1.0% in 2020 and 2.0% 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% in 2020 before growing 2.5% next year. Three months ago, it was seen shrinking 2.9% in 2020 and growing 2.0% next year.
Medians forecast a 5.1% contraction for the United Arab Emirates’ economy this year and 2.6% growth in 2021. Three months ago, they expected the economy to shrink 0.4% 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%, 4.7% and 4.4% 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.
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