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World Bank asks GCC economies to focus on environmental sustainability as growth slumps

The economic growth in the Gulf Cooperation Council (GCC) is estimated to drop to 0.8 per cent in 2019 as compared to 2 per cent last year, the World Bank said in its latest Gulf Economic Update report. This weakened growth is primarily due to muted oil prices and excess oil supply, despite a growth in non-oil sectors in the region.

“While most GCC countries retained strong external positions in 2019, the ongoing slowdown in China and the continued global trade war are hindering their efforts to boost non-oil exports,” said the World Bank in a tweet.

The report analyses the economic condition of six GCC nations: Oman, Saudi Arabia, Bahrain, Kuwait, Qatar, and United Arab Emirates.

Read: Here is how GCC banks are likely to perform in 2020

The multilateral institution further urged the Gulf nations to integrate environmental sustainability into their strategies and highlighted its connection with economic diversification. The six GCC states have so far have been focusing on energy-intensive measures a part of diversification strategies.

“Ensuring diversification efforts are climate-friendly is critical for environmental sustainability and ensuring GCC’s resilient growth in the face of changing tech & global trends. As Gulf countries strive to diversify their economies, they should ensure that diversification strategies are aligned with environmental sustainability goals,” said Issam Abousleiman, regional director for the GCC, World Bank.

Here’s a quick look at World Bank’s statement on economic outlook of the six GCC nations:

Bahrain

“Growth dropped to 0.8 (y/y) in the second quarter after posting a 2.6% growth rate in the first quarter of 2019. The oil and non-oil sectors made a roughly equal contribution to year-on-year (y/y) growth in the first quarter. Bahrain’s economy is expected to grow at an average rate of 2.3% over 2020-21,” said the World Bank.

Kuwait

“Growth is expected to dip to 0.4% (y/y) in 2019 before picking up to 2.2% in 2020, when the OPEC production cuts are slated to expire, and 2% in 2021. Kuwait is the GCC’s most oil-dependent economy. The oil sector contributed 0.8 percentage points to growth in the first quarter but deducted 0.2 percentage points from growth in the second quarter.

Oman

“The growth rate is projected to accelerate from an estimated 0% in 2019 to 3.7% in 2020 and 4.3% in 2021, supported by rising natural gas production. Negative nominal growth rates were reported in the first half of 2019. Nominal GDP growth was -2.2% (y/y) in the first quarter and -1.9% in the first half of the year.

Read: Oman Vision 2040: Defining Future Goals

Qatar

“Growth contracted 1.5% (y/y) in the second quarter of 2019, after posting a tepid 0.8% growth rate in the first quarter. The downturn in the second quarter was driven by both the oil and non-oil economies. Qatar’s economy is projected to grow by a modest 0.5% in 2019 before accelerating to 1.5% in 2020 and 3.2% in 2021.

Saudi Arabia

“Growth was modest at 1.7% (y/y) during the first quarter and 0.5% during the second quarter. Saudi Arabia’s GDP growth rate will likely slow to 0.4% in 2019 before rising to an average of 2.1% over 2020-2021. The global economy’s gradual stabilization at a forecast growth rate of 2.5% in 2021 should boost oil demand and stabilize oil prices at US$59 per barrel in 2020-21.

Read: MENA economies on top in World Bank’s Ease of Doing Business 2020 report

United Arab Emirates

“Growth in the United Arab Emirates (UAE) surprised on the upside in the first quarter of 2019. While the UAE has not released economy-wide numbers for the second quarter, the Purchasing Managers’ Index (PMI) and other indicators of economic sentiment suggest that non-oil growth maintained its momentum from 2018 through at least mid-2019, while a 7% decrease in oil production weakened growth in the oil sector. The UAE’s GDP growth rate is projected to accelerate from 1.7% in 2018 to 3% by 2021,” said the World Bank.

The Solution

The natural ecosystem in the GCC countries face profound pressures that threaten long-term growth and development, says the multilateral agency. Climate change will further aggravate these threats.

The World Bank highlighted three ways to help GCC countries align diversification strategies to environmental sustainability objectives:

1. Asset diversification approach

2. Liberalizing energy and water prices & investments in renewable energy

3. Establish effective environmental management institutions

GCC nations need to embrace investment strategies that targets the diversification of national wealth including building human capital and other environmentally sustainable asset classes, it added.

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