Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries

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Global growth is forecast at 3.6 percent this year, and 3.7 percent in 2018, compared to 3.2 percent in 2016.
Risks around this forecast are broadly balanced in the near term, but are skewed to the downside over the medium term.
The more positive global growth environment should support somewhat stronger oil demand.
With inflation in advanced countries remaining subdued, monetary policy is expected to remain accommodative.

GCC countries are continuing to adjust to lower oil prices.
Substantial fiscal consolidation has taken place in most countries, mainly focused on expenditure reduction; this has weakened non-oil growth.
Non-oil growth is expected to increase to 2.6 percent this year, from 1.8 percent last year.
Because of lower oil output, overall real GDP growth is projected to slow to 0.5 percent in 2017 from 2.2 percent in 2016.
Growth prospects in the medium-term remain subdued amid relatively low oil prices and geopolitical risks.

Policymakers have made a strong start in adjusting fiscal policy.
Recommended policy focus:
- Continue recurrent expenditure rationalization.
- Implement further energy price reforms.
- Increase non-oil revenues.
- Improve efficiency of capital spending.
- Further improve fiscal frameworks and institutions.
The direction of fiscal policy in the GCC is broadly consistent with these recommendations.
The needed pace of fiscal adjustment varies across countries depending on the fiscal space available.

Policies should be geared toward managing evolving liquidity situations in the banking system and supporting the private sector’s access to funding.
Countries have made progress in enhancing financial policy frameworks.
Strengthening liquidity forecasting and developing liquidity management instruments will help banks adjust to a tighter liquidity environment.
Banks generally remain profitable, well capitalized, and liquid.
With growth expected to remain relatively weak, monitoring of financial sector vulnerabilities should continue to be enhanced.

Diversification and private sector development are needed to offset lower government spending and ensure stronger, sustainable, and inclusive growth.
Required reforms and measures:
- Step up reforms to improve the business climate.
- Reduce the role of the public sector in the economy through privatization and PPPs.
- Increase incentives for nationals to work in the private sector and for private sector firms to hire them.
- Increase female participation in the labor market and employment to benefit productivity and growth.
Where fiscal space is available, fiscal policy can be used to support structural reforms needed to boost private sector growth and employment.

Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries, December 14, 2017.