An MUFG MENA Economic report issued this week expects a pick-up in MENA regional growth despite heightened geopolitical tensions and weaker energy earnings.
The bank's research forecasts MENA real GDP growth of 2.7% in 2020, from a near flat 0.1% in 2019, with Saudi Arabia continuing last year's trend of being the regional outperformer. This performance will remain below the long-term equilibrium average level of 4.2%.
According to the research paper, “investors are taking increasing comfort with the lengths and vigour that the Saudi authorities are demonstrating in enhancing the operating environment, enticing foreign investment and implementing structural reforms in accordance with Vision 2030 targets." Saudi Arabia was named the top global reformer, based on the World Bank's ease of doing business score, rising 30 places to 62, in the 2020 rankings.
Privatisation, in particular, has received a boost in Saudi Arabia and will have further momentum in 2020. “We believe that the Kingdom as well as the rest of the region will accelerate privatisation plans this year, which is in line with the economic transformation strategy," the report said.
Ehsan Khoman, Head of MENA Research and Strategy at MUFG and author of the report, explained:
"Privatisation initiatives are an integral part of regional government's strategies for achieving economic development, structurally adjusting the economy away from the reliance on hydrocarbons and realigning it away from volatile oil and gas prices.
"As such, governments in the region have devised wide ranging reform plans, with privatisation of state-owned enterprises (SOE's) central to such initiatives."
Dubai, which already has the most diversified regional economy with hydrocarbons representing only 1.6% of its GDP, is also expected to witness a rebound in economic growth this year, according to the report. This will be triggered by a number of factors that will foster an overall momentum and spur a higher real GDP growth in the Emirate.
Dubai's GDP in 2020 will be boosted by stronger corporate activity, higher credit growth, higher real estate prices, and renewed business optimism surrounding future output as corporates look to the upcoming World Expo in 2020, explained Khoman.
The report expects the bearish trend of oil prices in 2019 to continue through 2020, with slightly weaker energy earnings this year.
"Our Brent spot average is forecast at USD62.3/b in 2020, based on our models which signal a moderately balanced global oil market (0.4m b/d surplus)." added Khoman. "Our forecast for one-year forward Brent futures is USD56.6/b."
The GCC financing needs to meet fiscal deficits and investment programmes in 2020 stand at US$73.5bn, or 4.4% of GDP, from US$62.4bn, or 4.8% of GDP, in 2019. This excludes Qatar and Kuwait, both of which are projected to post a surplus.
Click here to read the full report.