Embed Size (px)
Citation preview
Modest GCC economic growth over 2021-2023 is to be led by thenon-hydrocarbon sector
Trevor Cullinan Director - Sovereign Ratings
Dubai (971) 4-372-7113;[email protected]
Dec. 7, 2020
GCC Economic Activity Held Back By Its Hydrocarbon-Heavy Economic Structure And OPEC-Related Production Cuts
Giulia FiloccaCredit Analyst – Sovereign Ratings
London (44) 7176-0614;[email protected]
Contents
2
Key Takeaways 3
GCC Aggregate Data 4
Individual GCC Sovereign Sectoral Growth 5-19
Bahrain 5
Kuwait 7
Oman 9
Qatar 11
Saudi Arabia 13
UAE 15
Abu Dhabi 17
Dubai 19
Key Takeaways
3
– S&P Global Ratings expects a modest economic recovery for the GCC over 2021-2023, with real GDP growth of 2.5%, after a contraction of about 6% in 2020.
– This year’s contraction is split relatively evenly between the hydrocarbon (oil and gas production) and nonhydrocarbon sectors and stems from OPEC production cuts, alongside weaker regional demand due to low oil prices, and restricted economic activity due to the COVID-19 pandemic. The hydrocarbon sector accounts for close to 40% of the GCC’s real GDP.
– Saudi Arabia’s economy is almost twice the size of the next largest GCC sovereign, the UAE, and so has an overweight bearing on the aggregate data.
– We expect a broad recovery across hydrocarbon and nonhydrocarbon sectors, over the period to 2023. Our base case assumption is that OPEC+ production cuts, amounting to about 17% of October 2018 production, end in April 2022.
– Our current assumptions see Brent oil prices averaging $50 in 2021-2022 and then $55 in 2023 and beyond.
– These assumptions are based on our view that widespread availability of effective immunization against the coronavirus could come by the middle of next year. As the situation evolves, we will update our assumptions and estimates accordingly.
Our Economic Forecast For The GCC
4
*Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE. Source: S&P Global Ratings.
Percentage points contribution to annual change in GDP, 2020
Percentage points contribution to annual change in GDP, 2021-2023
Foreign currency ratings
Hydrocarbon sector, % of
real GDP, 2019
Annual % change in real
GDP, 2020Hydrocarbon
sector
Non-hydrocarbon
sector
Annual average, %
change in real GDP, 2021-
2023Hydrocarbon
sector
Non-hydrocarbon
sector
Bahrain B+/Stable/B 17.8 (5.0) 0.0 100.0 2.4 7.6 92.4
Kuwait AA-/Negative/A-1+ 53.0 (7.0) 66.4 33.6 4.5 80.7 19.3
Oman B+/Stable/B 41.4 (5.0) 49.7 50.3 2.6 41.8 58.2
Qatar AA-/Stable/A-1+ 46.8 (4.4) 17.6 82.4 1.8 4.5 95.5
Saudi Arabia A-/Stable/A-2 37.8 (4.5) 70.6 29.4 2.4 46.7 53.3
UAE Not rated 29.8 (8.6) 37.8 62.2 2.5 38.0 62.0
of which Abu Dhabi AA/Stable/A-1+ 50.4 (7.5) 72.5 27.5 2.5 62.4 37.6
of which Dubai Not rated 1.6 (10.8) 2.2 97.8 3.1 1.3 98.7
Total GCC* -- 38.0 (5.8) 49.6 50.4 2.5 44.2 55.8
Bahrain: Non-Oil Growth Will Lead A Modest Recovery From 2021
– Bahrain’s economy is less directly dependent on the hydrocarbon sector than the rest of the Gulf (see slide 4).
– We expect a 5% contraction in 2020 real GDP driven by the nonhydrocarbon sector, largely due to weakness in the financial services and manufacturing sectors--the two largest nonhydrocarbon sectors--and sharp contractions in the transport sector and hotels & restaurants.
– We expect the government's plans to promote infrastructure development, including several large projects like the refinery modernization program, to support growth. Funding will come from the private sector (US$15 billion), government-owned companies (US$10 billion), and GCC funds for infrastructure investment (US$7.5 billion).
– GDP in U.S. dollar terms is likely to recover to 2019 levels midway through 2022.
– The hydrocarbon sector will remain relatively stable because there is relatively limited scope to expand production and OPEC production cuts are not acting as a constraint.
5
Contact: Max M McGraw, Dubai, +97143727168, [email protected]
Bahrain Annual Real GDP Growth: Production Bahrain Annual Real GDP Growth: Expenditure
Bahrain: Non-Oil Growth Will Lead A Modest Recovery From 2021
-8
-6
-4
-2
0
2
4
6
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
6
f--Forecast. Sources: S&P Global Ratings, National statistical authorities.
-20
-15
-10
-5
0
5
10
15
20
Per
cen
tage
cha
nge
%
Real consumption Real investmentReal net exports Real GDP
Kuwait: Recovery Delayed Until 2022, Driven By Oil Sector Trends
– Kuwait’s economy is the most directly dependent on hydrocarbons of all GCC sovereigns (see slide 4). As an OPEC member, Kuwait has committed to implement oil production cuts until April 2022.
– We expect economic growth to surge in 2022 due to stronger net exports, driven by rising oil production. From 2023, as additional oil production capacity comes online, including from the restart of production in the Joint Neutral Zone with Saudi Arabia, we expect Kuwait’s economic growth to remain strong.
– Kuwait's economic growth was sluggish before COVID-19, with output expanding by just 0.4% in 2019 and 1.3% in 2018.
– Against the backdrop of the pandemic, the government has announced a renewed Kuwaitization effort, where nationals replace foreign workers. We assume this to be a gradual process.
– We expect the non-oil sector to play an only limited role in Kuwait’s recovery over the next few years.
7
Contact: Maxim Rybnikov, London, + 44 7824 478 225, [email protected]
Kuwait Annual Real GDP Growth: Production Kuwait Annual Real GDP Growth: Expenditure
Kuwait: Recovery Delayed Until 2022, Driven By Oil Sector Trends
8
f--Forecast. Source: S&P Global Ratings, National statistical authorities.
-10
-5
0
5
10
15
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
-20
-10
0
10
20
30
40
Per
cen
tage
cha
nge
%
Real consumption Real investment
Real net exports Real GDP
Oman: Economic Growth Will Remain Relatively Muted
– The OPEC+ agreement to limit oil production, which Oman voluntarily signed, will reduce the country’s volumes at least 6% in 2020.
– Lower economic activity due to pandemic-driven lockdowns and curfews, the slowdown in global tourism, and planned delays in public-sector capital spending will weigh on the non-oil sector in 2020. GDP growth had already been subdued in Oman, averaging only 0.2% in 2017-2019.
– The number of expatriates declined 15% in the past year to mid-November, and we estimate it will fall 5% for 2020.
– We expect a gradual recovery in domestic demand and investment for 2021.
– Economic activity will find support from rising gas production from the Ghazeer field. The lifting of OPEC production limits in 2022 will support net exports. We project real GDP growth of 2.2% in 2021 and 3.5% in 2022.
– We expect real GDP to recover to 2019 levels by 2022.
9
Contact: Zahabia S Gupta, Dubai, (971) 4-372-7154, [email protected]
Oman Annual Real GDP Growth: Production Oman Annual Real GDP Growth: Expenditure
Oman: Economic Growth Will Remain Relatively Muted
10
f--Forecast. Source: S&P Global Ratings, National Statistical Authorities.
-6
-4
-2
0
2
4
6
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
-15
-10
-5
0
5
10
15
20
25
Per
cen
tage
cha
nge
%
Real consumption Real investment
Real net exports Real GDP
Qatar: A Weak Construction Sector To Dampen Economic Growth
– Qatar is second only to Kuwait in the GCC in direct economic dependence on the hydrocarbon sector (see slide 4).
– The country left OPEC in January 2019 and is not subject to its production cuts. Qatar’s hydrocarbon sector is about 80% gas and 20% oil, while most other GCC economies are concentrated in the oil sector.
– However, it is the non-hydrocarbon sector that is dragging down economic activity in 2020 and that we expect to support the recovery in 2021.
– Headline real GDP growth through 2023 will remain below the historical average due to a slowdown in construction and associated sectors. We expect limited gas production growth in 2021-2023.
– From end-2025 through 2027, following extensive investment in Qatar’s North Field, we expect liquefied natural gas production to rise sharply by about 64% to 126 million tons annually (about 3.1 million barrels per day of oil equivalent).
11
Contact: Shokhrukh Temurov, CFA, Dubai, + 97143727167, [email protected]
Qatar Annual Real GDP Breakdown: Production Qatar Annual Real GDP Growth: Expenditure
Qatar: A Weak Construction Sector To Dampen Economic Growth
12
f--Forecast. Sources: S&P Global Ratings, National statistical authorities.
-9
-7
-5
-3
-1
1
3
5
7
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
-10
-8
-6
-4
-2
0
2
4
6
Per
cen
tage
cha
nge
%
Real consumption Real investment
Real net exports Real GDP
Saudi Arabia: Recovery Limited By OPEC+ Deal Quotas
– The sharp decline in Saudi Arabia’s net exports, due to OPEC+ related oil production cuts, brought down real GDP in 2020. We see broad declines across non-oil sectors, and steep drops in wholesale and retail trade and restaurants and hotels.
– The government's fiscal consolidation measures included a July increase in VAT to 15% from 5%, which will reduce domestic consumption in the second half of the year.
– The government did not permit international visitors to undertake the annual Hajj pilgrimage this year but allowed the year-round Umrah pilgrimage to recommence from October, though with pandemic-related restrictions.
– In 2022, we expect economic activity to accelerate to close to 3% due to the end of OPEC+ quotas. We expect real GDP to recover to 2019 levels in 2022.
– In the years ahead, the government will continue to pursue its Vision 2030 program, largely aimed at supporting the non-oil economy and social transformation of the country via a series of large projects.
13
Contact: Ravi Bhatia, London, + 44 20 7176 7113, [email protected]
Saudi Arabia Annual Real GDP Breakdown: Production
Saudi Arabia Annual Real GDP Growth: Expenditure
Saudi Arabia: Recovery Limited By OPEC+ Deal Quotas
14
f--Forecast. Sources: S&P Global Ratings, National statistical authorities.
-9
-7
-5
-3
-1
1
3
5
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
-30
-20
-10
0
10
20
30
Per
cen
tage
cha
nge
%
Real consumption Real investmentReal net exports Real GDP
UAE: Drops In Abu Dhabi’s Oil Activity And Dubai’s Tourism Will Stunt Growth
– The UAE economy is dominated by the economies of Abu Dhabi (59% of 2019 UAE GDP) and Dubai (28%).
– The UAE’s large hydrocarbon sector almost fully relates to that of Abu Dhabi.
– The sharp drop in tourism and real estate activity will play the leading roles in dragging down the non-hydrocarbon sector in 2020.
– Real GDP is to recover to 2019 levels by 2023.
15
Contact: Samuel Tilleray, London + 442071768255; [email protected]
UAE Annual Real GDP Growth: Production UAE Annual Real GDP Growth: Expenditure
UAE: Drops In Abu Dhabi’s Oil Activity And Dubai’s Tourism Will Stunt Growth
16
UAE--United Arab Emirates. f--Forecast. Sources: S&P Global Ratings, National statistical authorities.
-12
-10
-8
-6
-4
-2
0
2
4
Per
cen
tage
cha
nge
%
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
-25
-20
-15
-10
-5
0
5
10
15
Per
cen
tage
cha
nge
%
Real consumption Real investment
Real net exports Real GDP
Abu Dhabi: Growth Prospects Linked To The Hydrocarbon Sector
– Abu Dhabi is highly dependent on the hydrocarbon sector. Because of OPEC+ cuts, we expect Abu Dhabi's oil production will decline to an average 2.8 million barrels a day in 2020, from 3.1 million in 2019. Non-oil sectors such as real estate, trade, retail, and hospitality will contract sharply this year.
– Even before the pandemic began, economic growth had been subdued, averaging 1.3% over 2018-2019, largely because of oil production cuts under the previous OPEC agreement. At the same time, non-oil sector activity stalled because of weak regional demand, tight fiscal and monetary policy, and rising geopolitical tensions.
– We expect a gradual economic recovery from 2021, but with real GDP only to recover to close to 2019 levels by 2023.
– Hydrocarbon sector production will be boosted from 2022 as OPEC+ oil production limits are lifted and new gas production comes on stream. Non-oil sector recovery will be driven by public investment in manufacturing particularly petrochemicals, logistics, and construction.
17
Contact: Zahabia S Gupta, Dubai, (971) 4-372-7154, [email protected]
Abu Dhabi Annual Real GDP Breakdown: Production
Abu Dhabi: Growth Prospects Linked To The Hydrocarbon Sector
18
f--Forecast. Sources: S&P Global Ratings, National statistical authorities.
-12
-10
-8
-6
-4
-2
0
2
4P
erce
nta
ge c
hang
e %
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
Dubai: The Sharpest Declines In Economic Activity Across the GCC
– Dubai's economy will contract sharply in 2020, owing partly to the importance of travel and tourism, two of the industries most affected by COVID-19. We expect broad declines across practically all other sectors.
– The delayed Expo 2020, which will now take place Oct. 1, 2021-March 31, 2022, should provide a platform for a recovery in activity.
– We project real GDP to recover to 2019 levels by 2023.
– The hydrocarbon sector plays an only limited direct role in Dubai’s economic activity, but an important indirect one because of the impact of oil prices on regional demand.
19
Contact: Samuel Tilleray, London + 442071768255; [email protected]
Dubai Annual Real GDP Breakdown: Production
Dubai: The Sharpest Declines In Economic Activity Across the GCC
20
f--Forecast. Source: S&P Global Ratings, National Statistical Authorities.
-15
-10
-5
0
5
10P
erce
nta
ge c
hang
e %
Hydrocarbon GDP Non-hydrocarbon GDP Real GDP
Related Research
– Emerging Markets Monthly Highlights: Downside Risks Prevail Despite Supportive Markets, Nov. 12, 2020
– COVID-19- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, International Public Finance, And Project Finance To Date, Dec. 2, 2020
– GCC Banks: Lower Profitability Is Here To Stay, Oct. 13, 2020
– Credit FAQ: Dubai's Already High Debt Burden Set To Worsen Amid A Deep Pandemic-Related Macroeconomic Shock, Sept. 30, 2020
– Bulletin: Israel's Agreements With Bahrain And The UAE Signal Shifting Alliances In The Middle East, Sept. 17, 2020
– Credit FAQ: GCC Government Funding Needs Increase Sharply On Low Oil Prices And COVID-19, July 20, 2020
– Credit FAQ: Why GCC Pegged Exchange Rate Regimes Will Remain In Place, June 1, 2020
21
22
Copyright © 2020 by Standard & Poor’s Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Australia: S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.
spglobal.com/ratings
