Rising global oil production poses challenges for Oman and other Gulf Cooperation Council (GCC) nation economies, according to a global accountancy and finance body.

In a new report, released on Wednesday, ICAEW, the accountancy and finance body, says the global oil market should balance in the months ahead, thanks to Oil Production and Exporting Countries (OPEC) production cuts. 

“However, global production is also expected to rise as shale production steps up in response to price stability – limiting price rises,” the body states, adding that the GDP growth in GCC economies looks set to ease to just 1.1 per cent in 2017, the weakest since the global financial crisis.

For Oman, the group predicts 0.4 per cent GDP growth in 2017 and 2.7 per cent in 2018.

A recent bulletin published by the Central Bank of Oman (CBO) stated that the economy witnessed a 9 per cent decline in nominal GDP in the first nine months of 2016 compared to the corresponding period in 2015.

The report ‘Economic Insight: Middle East Q1 2017’, produced by Oxford Economics, ICAEW’s partner and economic forecaster, says global production is likely to rise in 2017-2018.

This will limit the rise in oil prices from an average of $43 in 2016, to $52 in both 2017 and 2018, before a more vigorous acceleration from 2019 onwards.

Global developments are of crucial importance for the region, according to the report.

“The early months of Donald Trump’s US Presidency have raised questions over the US commitment to military spending overseas. Lower US military spending in the region would directly lower demand, or could ‘crowd-out’ pro-growth expenditure if national governments need to increase their own spend to ensure security is not jeopardized,” the body added.

While President Donald Trump’s plans for infrastructure spending have boosted commodity prices, including oil, his aspiration for increased US oil supply is likely to mean lower prices in the long-term.

Tom Rogers, ICAEW Economic Advisor and Associate Director of Oxford Economics said that the outlook for Middle Eastern economies remains challenging in 2017, due to continued uncertainty in the global oil market, ongoing austerity, and the need to diversify government revenues and economic growth.

“Increasing non-oil revenues is vital to maintain financial steadiness,” Rogers added.

According to the report, the rally in the dollar has forced an appreciation of currencies pegged to it, including in the GCC.

Given the importance of imports in consumer spending, this will boost household budgets, and ease business costs for a similar reason. It will also raise the price of exports from GCC economies, making diversification and import substitution harder.

Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said that the majority of GCC countries have taken vital steps to increase non-oil revenues, reduce subsidies and government expenditure.

“One more year of austerity will help lower deficits to less alarming levels in some GCC economies,” Armstrong added.

On a positive note, the report expects fiscal policy to ease in 2018 and alongside a rising oil price, GDP growth could boost above 3 per cent in 2018-2019.

A report by Bank of America Merrill Lynch (BofAML) says that the sharp drop in oil prices last year and spending slippage have led to a large widening in the 2016 fiscal deficit for Oman.

“The consolidated government fiscal balance recorded a deficit of OMR 5.2 billion ($13.5 billion, 22.6 per cent of GDP) in 2016, widening from OMR 4.2 billion ($10.8 billion, 16.9 per cent of GDP) in 2015,” the report says.

Source: Timesofoman