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GCC economies must continue to diversify to overcome volatile growth, says WB economist on sidelines of Economy Middle East Summit

GCC economies must continue to diversify to overcome volatile growth, says WB economist
2 May 2024 16:00

KHALED AL KHAWALDEH (ABU DHABI)

The World Bank’s (WB) chief economist to the Middle East and North Africa says GCC economies must diversify to overcome chronically slow, and at times volatile growth, adding that building resilient economies was crucial to weathering expanding geopolitical turmoil.

Speaking to Aletihad on the side-lines of the Economy Middle East Summit held at Abu Dhabi Global Markets on Wednesday, Roberta Gatti hailed the UAE’s regional leadership for diversifying its economy, saying that its proactive approach would set it apart in the years to come.

“The UAE has done a tremendous job. In terms of diversification among the GCC countries, it is the one with the lowest share of concentration of the fuel economy. This has been achieved with successive waves of reforms and really forward-looking policies. We see an uptick in the forecast of growth for the UAE and like a few other countries in the GCC, also robust growth in the non-oil sector,” she told Aletihad.

Roberta said continuing the drive towards diversification was crucial to ensuring growth in coming years remained stable, saying the often-volatile boom and bust nature of the region had the possibility of dissuading investors. 

“What you would want ideally is to have high steady growth. The problem is, once you look into the variability, you really see the GCC countries have high variability of growth. Which significantly varies depending on their terms of trade. This is something that is a challenge to manage,” she explained.

“The question still remains that they’re very exposed to the variation in oil prices and this means they go through cycles of booms and bust. Growing at 8% and then growing at minus 0.9% is a costly way to grow and that’s why diversifying is very important.” 
In April, the WB raised its forecast for the UAE’s real GDP growth to 3.9% in 2024, compared to its previous forecast in January of 3.7%. It further raised its forecasts for 2025 to 4.1% from its previous forecast of 3.8%. Roberta said the positive reassessment was indicative of a strong and resilient economy.

She said increased output would bring GCC economies back to the baseline point they were at before the pandemic. Roberta warned against the comfort of hovering around the 4-5% growth mark and asserted that structural reforms, particularly increased diversification, had the potential to see the region achieve greater performance.

“When you compare the growth in the decade before the pandemic, you will find what we have called in other reports, chronic low growth, that which is significantly lower than emerging, and developing economies in the world,” she said.

“And so, in a way we think this chronic low growth is one of the key structural issues that the region needs to overcome, and it will do so by bracing structural reforms. For oil exporting countries this is certainly diversification.”

Non-oil sectors have shown remarkable strength in the previous year, with the UAE showing signs it is on a strong path towards diversification. In 2023, UAE’s non-oil trade reached a record high 3.5 trillion dirhams ($952.93 billion) growing 12.6% from the previous year. In Abu Dhabi, the non-oil sector grew 9.1% in 2023, compromising 53.4% of total GDP.

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