Gulf Economies So Hit by Crisis That Rebound May Be L-Shaped

(Bloomberg) -- The non-oil economies of the energy-rich Gulf states are likely going in reverse this year, shrinking in the case of Saudi Arabia for the first time in more than three decades.Once they shift into higher gear, the bounceback will generate so little momentum that a creeping recovery may look 'L-shaped' for years to come, according to Ziad Daoud of Bloomberg Economics.Although higher crude production may pull overall growth higher, the Gulf Cooperation Council -- comprising six monarchies including Saudi Arabia -- will likely suffer a contraction of about 2% this year in non-oil activity, which is a better gauge of economic health and an engine of job creation.'Non-oil growth in the Gulf could shift to a lower level once the virus crisis is over,' Daoud said. 'The severity of the oil shock might make governments reluctant to spend, a prerequisite for a stronger turnaround in the years ahead.'Reliant on oil income for the bulk of their revenue, regional governments are barely cranking up stimulus, depriving their economies of emergency assistance at a time businesses and travel are in lockdown to stop the spread of the pandemic. Saudi Arabia is the only country in the Group of 20 that's cutting expenditure during the deepest global downturn on record.Oil had its worst quarter on record after the coronavirus crushed demand and raised fears about overflowing storage tanks amid a price war that has flooded the market with extra supply. Lower crude prices will push up budget deficits across much of the Gulf.While most nations in the region have rolled out packages last month to support their economies, the focus is largely on monetary and off-budget measures such as relief on loan or tax payments for businesses in distress or liquidity provision.Saudi Arabia has also announced 50 billion riyals ($13.3 billion) in budget spending reductions. Oman plans to lower spending by 5% and has instructed state-owned companies to reduce current expenditure by 10% and pause capital outlays.'The GCC stimulus has been timid,' Daoud said. 'There's the possibility that the sharp but temporary downturn from the virus could lead to permanent damage if companies go bankrupt, workers get laid off and expatriates leave in droves.'(Updates with spending cuts in eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.2020 Bloomberg L.P.
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