Oil prices/ revenues: Through the month, oil prices were affected by the burgeoning trade war between the US and China that might affect global oil demand, the US-Iran war of words, and the attack on the Saudi oil tanker in the Red Sea. At month-end, West Texas Intermediate (WTI) crude for September delivery rose 31 cents to settle at $69.61 a barrel on the New York Mercantile Exchange. Brent for September added 61 cents to end the session at $74.54 a barrel on the London-based ICE Futures Europe exchange.
The benchmark Brent oil price has averaged about $71.60 a barrel so far this year, up from $55 last year. Also, Gulf states are set to export more oil this year after global producers agreed last month to boost output, partly to compensate for anticipated losses in production by Iran, which faces US sanctions. This is a boon for state finances and external surpluses across the region, especially in Saudi Arabia, the top exporter. Saudi investment bank Jadwa forecasts Riyadh’s oil revenues at $154 billion this year, instead of the $131 billion which the government budgeted last December.
In the poll of 24 economists, the median prediction for Riyadh’s state budget deficit this year was 4.8 percent of gross domestic product, instead of the 7.8 percent they forecast in the last poll. A 4.8 percent deficit, while still unsustainable for Saudi Arabia in the long run, would be the smallest since 2014, when an oil price plunge began to pressure Riyadh’s finances. The latest poll predicts next year’s deficit at 4.5 percent of GDP, instead of 6.7 percent previously forecast.
Fiscal forecasts for the other five Gulf Cooperation Council states have also improved. The United Arab Emirates is now seen enjoying a state budget surplus of 0.1 percent of GDP this year instead of a 2.9 percent deficit; the forecast for 2019 has switched to a 1.4 percent surplus from a 2.2 percent deficit.
Similarly, current account surpluses for the four strongest GCC economies - Saudi Arabia, the UAE, Kuwait and Qatar - are expected to swell. Saudi Arabia is now seen running a surplus of 8.7 percent of GDP this year, up from the previous poll’s 3.3 percent - although it would remain smaller than the double-digit figures recorded before the oil price plunge.
However, the improvements look likely to have little impact in raising modest economic growth in the Gulf, the latest poll showed. Private sector companies are still struggling with government austerity steps such as tax rises and spending curbs, and because governments are expected to use much of their windfall oil revenues to cut deficits rather than stimulate growth.
The latest poll raises the median forecast for Saudi GDP growth this year to 1.8 percent from 1.5 percent, and to 2.5 percent from 2.4 percent for next year. Jadwa expects Saudi Arabia’s non-oil private sector to expand just 1.1 percent this year. Growth forecasts for the UAE are unchanged from the previous poll at 2.6 percent this year and 3.2 percent next.
August 1, 2018