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UAE economy regains regional lead

29 May 2024

 

The UAE has edged ahead of Saudi Arabia again to take the lead in the MEED Economic Activity Index, which assesses the near-term economic health of regional markets, as a gap has opened up between the economic and fiscal performances of the two countries in 2024 to date.

Saudi Arabia and the UAE entered 2024 with similarly buoyant 4% real GDP growth projections from the Washington-based IMF, but have since diverged. In April, the IMF revised its growth forecast for the UAE to 3.5%, and the forecast for Saudi Arabia 2.6%. 

The World Bank has meanwhile maintained a more optimistic 3.9% real GDP growth projection for the UAE in 2024, but an even lower projection of 2.5% for Saudi Arabia.

The trade and fiscal balance performances of the two countries have also diverged. The UAE is forecast for a 7.8% of GDP current account surplus and 4.5% of GDP fiscal surplus, while Saudi Arabia’s current account surplus has narrowed to 0.5% of GDP, while its budget has slipped into a 2.8% deficit.

Oil price impact

Saudi Arabia’s reduction in its growth and slide into fiscal deficit have both partially been brought about by the impact of softer oil prices and Opec-led production cuts, which have naturally hit the more heavily oil-dependent Saudi economy to a greater extent than the more diversified UAE economy. The UAE Central Bank is forecasting a non-oil GDP growth rate of 4.7% for the country in both 2024 and 2025.

Together, the two countries remain comfortably in the lead at the top of the index, due in large part to the buoyancy of both of their projects markets. Contract award values in the past 12 months for both countries were double the long-term average, while new work outstripped completed work twofold in the UAE and fourfold in Saudi Arabia.

Wider market

Elsewhere in the GCC, Qatar and Oman have both seen their real GDP growth slip in 2024, to 2% and 1.2%, respectively – driven by slight weakness in both the hydrocarbons and non-hydrocarbons sectors. Both countries remain in fiscal surplus, however, and have stable projects markets, with work being tendered at or above the long-term average award values and above the rate of completion.

Kuwait is projected to see its GDP contract for the second year in a row as a weaker oil market and production cuts hit hard. Kuwait is the most heavily oil-dependent and least diversified country in the region, with 95% of exports and 90% of government revenue coming from the oil sector, making the country and its real GDP metric highly sensitive to fluctuations in the oil price – though it still has a fiscal surplus. At the same time, the country’s projects market also continues to underperform, with contract awards 40% below the long-term average and 25% below the rate of completion.

Algeria has meanwhile risen up the ranking and boasts a forecast of 3.8% real GDP growth in 2024 – the strongest in the region, according to the IMF. While it is still expected to remain deep in fiscal deficit, inflation is on a downward trend, and the projects market has above-average contract award activity.

Bahrain, despite a projected 3.6% growth rate in 2024, remains in concerning fiscal and debt positions. Its short-term risk rating was recently elevated to the second-highest level by insurance group Allianz. The Bahraini projects market is also in steep decline, with the value of contract awards in the last 12 months coming in at just over a third of the long-term average and at little more than half the level of project completions.

Morocco, Jordan and Egypt are all expected to experience moderate 2-3% real GDP growth rates this year, while continuing to struggle with persisting current account and fiscal deficits. All three countries also have elevated unemployment and government debt, as well as underperforming projects markets, with awards over the past 12 months at two-thirds or less of long-term historic averages.

Iraq is another country with high oil market dependence and oil price sensitivity and is forecast for just 1.4% real GDP growth this year. Short-term risk in the country is also in an elevated state amid political turbulence and weaknesses in the security situation that have seen repeated attacks by non-state actors on oil sector infrastructure. The projects market nevertheless remains nominally steady for now, with sustained award activity at the level of long-term averages and also at the rate of project completions.

Tunisia has sunk to the bottom of the index with a weakened 1.9% growth rate in 2024 and an even lower growth projection of 1.8% in 2025 as the country continues to be caught up in political chaos and an economic crisis. Short-term risk is high, as are the rates of unemployment and inflation. The projects sector is reasonably active, but contract awards remain below the long-term average.

ABOUT THE INDEX

MEED’s Economic Activity Index, first published in June 2020, combines macroeconomic, fiscal, social and risk factors alongside data from regional projects tracker MEED Projects on the project landscape, to provide an indication of the near-term economic potential of Middle East and North African markets.

 

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John Bambridge

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