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COVID-19 impact: GCC faces biggest economic challenge in history


$2.6 trillion public foreign assets of the GCC to cushion economic challenges

Dubai: Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their biggest economic challenge in history in 2020, according to the Institute of International Finance (IIF).

“Restrictive containment measures and fear of contagion has weakened consumer confidence and demand. The depth of the contraction for this year and the speed of the expected recovery in 2021 is subject to a high degree of uncertainty,” said Garbis Iradian, Chief Economist, Middle East & North Africa, IIF.

While there are some reports partial containment of virus outbreak in the region, latest Purchasing Managers’ Index (PMI) for the UAE, Saudi Arabia and Egypt indicate as these economies relax COVID-19-related lockdown, businesses are picking up. However, analysts said economies will remain in contraction this year.

“We expect overall real GDP to contract by 4.4 per cent in 2020. Oil GDP is projected to contract by 5.3 per cent due to the OPEC+ production-cut agreement. The non-oil GDP could contract by 3.8 per cent due to virus-containment measures, the plunge in oil prices, and lower public spending,” said Iradian.

Recovery in 2021
While the service sector activity will be hit the hardest due to containment efforts and social distancing, private and public investments will be delayed. Growth could resume in 2021 supported by the partial easing in oil production cuts and gradual pick-up in private sector non-oil activity.

GCC authorities have resumed fiscal adjustments despite the recession. Wide range of measures such as cuts in public spending, slashing salaries of government employee and tripling of value added tax in Saudi Arabia, postponing of VAT in Kuwait and Qatar. The belt tightening across GCC are expected to offset part of the revenue losses from oil production cuts.

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