MidEast Trends: Proactive Economic Growth Needed to Sustain Rising Population

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Rising populations mean Middle East must grow to sustain living standards

Middle East economy
Rising populations mean Middle East must grow to sustain living standards


With population growth in the Middle East outpacing the rest of the world, local economies must grow just to maintain living standards, according to a new report by ICAEW. In its latest quarterly Economic Insight report, the accountancy and finance body says governments must step up efforts to diversify economies away from reliance on hydrocarbon production as increased oil supply pushes prices down.

Economic Insight: Middle East warns that while GDP growth in the Middle East is above the global average and expected to remain steady in the short term, oil prices are likely to drop as global supplies rise. The rapid expansion of US shale production and possible return of Iran to international markets, following the lifting of sanctions, would provide another supply boost to the global oil market. If this results in lower oil prices it could expose fiscal vulnerability amongst other oil-producing states in the region.

The Gulf Co-operation Council (GCC) has benefited from some of the world’s strongest growth rates since the financial crisis hit in 2008, with real GDP growing 24% over the five years to 2013. However, rapidly rising populations in GCC countries have made continuous economic growth essential to maintain living standards. Between 2008 and 2013, the population of the GCC rose by almost 20% – more than six times quicker than the rate of growth in the UK or US (2.9% and 2.7% respectively). This meant that despite robust economic expansion, living standards (measured by GDP per capita) fell in the UAE, Kuwait and Oman.

Peter Beynon, Regional Director, ICAEW Middle East, said: “Diversification has been an economic priority of GCC governments for most of the last decade, but the region’s high birth rates combined with a rising immigrant population means the economy must expand further if living standards are to keep pace with GDP growth.  As long as investment continues in transportation networks, improving education and building downstream industries, the GCC countries should escape the worst consequences of a sharper fall in the international oil price.”

Fortunately, GCC countries have among the world’s highest gross national savings. According to the International Monetary Fund (IMF), the GCC countries saved between 38 to 59% of national earnings in 2013. These high savings rates, a result of strong exports and persistent current account surpluses, can be used to further finance investment, providing these economies with a boost in their efforts to diversify and the prospect of higher GDP per capita.

Nevertheless, many households across the region will be feeling the pinch of rising inflation. After many years in which daily essentials, such as food and power, have been heavily subsidised by governments, fiscal pressures mean countries are now seeking to cut the amount they spend supporting household consumption. The immediate impact will be to increase the prices of these goods, raising inflation.

Douglas McWilliams, Chief Economist and Executive Chairman of Cebr, said: “The baseline forecast shows the price of oil falling gently in cash terms. With a rising cost of living this puts pressure on the Middle Eastern economies to diversify. The process would be intensified if an agreement is made that ends sanctions on Iran, which would (even after allowing for cuts in supply from other sources) reduce the price of oil further. Our calculation is that an end of sanctions would reduce the price of oil by $8 a barrel, though this is a central estimate. This makes improved education, skills and diversification key priorities for the region.”

The report also shows:

  • Following a period in which living standards struggled to keep pace with GDP growth, Oman, Kuwait and Bahrain will welcome a boost to GDP per capita rates growing 5%, 8% and 12% respectively over the next five years.
  • The most dramatic improvements to living standards is expected in Qatar where GDP per capita should nearly double between 2014 and 2025 thanks to the low cost of producing gas and the country’s hosting of the 2022 football World Cup.
  • High levels of fiscal spending will continue to provide an impetus for growth in Saudi Arabia, UAE and Qatar with GDP growth in 2014 expected to reach 4.5%, 4.2% and 6.3% respectively, irrespective of a deal with Iran. However, this will fall slightly later in the forecast period as governments grapple with the difficult problem of reducing spending on subsidies.

Economic Insight: Middle East is produced by Cebr (The Centre for Economics and Business Research), ICAEW’s partner and forecaster. The report provides ICAEW’s 142,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of the Middle East focusing on the Gulf Cooperation Council (GCC) member countries (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), as well as Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).

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