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publicationApril 14, 2022

GCC Economic Update — April 2022

Kuwait MENA Economic Update April 2022

BahrainKuwaitOman | Qatar | United Arab Emirates



The economy is gradually picking up as pandemic pressures fade, non-oil economy recovers, and hydrocarbon production increases. The fiscal deficit remains high as emergency crisis-spending persists but is expected to narrow gradually. The external balance will noticeably improve. The debt to-GDP-ratio is expected to remain elevated during the forecast period to meet fiscal needs. Downside risks arise from oil price volatility and insufficient fiscal adjustment, which could worsen fiscal and external positions and intensify pressure on already high public debt, thereby threatening macroeconomic sustainability.

Recent Developments

Bahrain’s economy is gradually emerging from a pandemic-caused recession. Latest official data indicate that the economy grew by 1.5% (y/y) in the first nine months of 2021 (9M-2021), after nearly a 5% contraction in 2020. The rebound was mainly underpinned by 2.3% growth in non-hydrocarbon, aided by strong expansion in the transportation and communication sector—one of the hardest-hit by the pandemic—as well as increased agricultural and fishing activity. The hydrocarbon sector contracted by almost 2% (y/y) in the same period. Growth is estimated to have registered 2.6% by end-2021, driven by non-hydrocarbon activities. Inflation remains in negative territory, averaging -0.6% due to weaker demand, as well as lower prices for rents caused in part by the departure of expatriates caused by the pandemic.


Bahrain’s economic outlook hangs on oil market prospects, pandemic conditions, and reform implementation. Growth is projected to accelerate to 3.5% in 2022, boosted by the surge in energy prices caused by the economic consequences the war in Ukraine and associated sanctions. Recovery of the non-oil economy is likely to continue thanks to successful vaccination rollout and further relaxation of restrictions on movement. Over the medium-term, however, non-oil economic activity will be dampened by fiscal consolidation. The expansion of the Sitra oil refinery and development of the Khaleej al Bahrain shale oil project will support the country's growth outlook going forward. Inflation is expected to increase to 2.5% in 2022, fueled by the doubling of VAT to 10% and continued recovery in domestic demand.


Kuwait exited a two-year recession in 2021, as COVID-19 restrictions and OPEC+ cuts gradually eased. Its fiscal deficit is expected to narrow with surging oil prices and its economic recovery projected to gather pace in 2022, due to the combined effects of fewer pandemic-related restrictions, higher oil production, and rising oil prices, boosting both oil and non-oil sectors. New coronavirus variants, volatile oil prices, and continued political deadlock over key reforms are, however, downside risks.

Recent Developments

Kuwait’s real GDP growth in 2021 is estimated at 2.3%, a modest rebound given that COVID-19 drove a deep contraction of 8.9% in growth in 2020. The recovery has been aided by the oil sector picking up in line with OPEC+’s decision to ease crude production cuts, as well as a rebound in domestic consumption, supported by renewed debt payment deferrals and higher consumer loans. Domestic credit increased by 6.3% in 2021, its highest growth rate since 2015, and was driven by households, while business credit remained flat. A spike in COVID-19 cases in early 2022 was the highest recorded since the crisis began, prompting the authorities to tighten restrictions. The case count has since dropped dramatically and now over 83% of the country's population is fully vaccinated. Inflation is expected to increase from 2.1% in 2020 to 3.4% in 2021 due to higher prices across all categories, led by food prices. The Central Bank of Kuwait raised interest rates by 25 bp, in line with the Federal Reserve System’s move to tackle inflation.


Economic growth in 2022 is expected to accelerate to 5.7% due to higher oil output, as OPEC+ cuts are phased out, and as domestic demand strengthens. Oil production is expected to increase by 8.6% in 2022 as OPEC+ lifts quotas and new capacity at the Al Zour refinery comes online. In the medium-term, real GDP will expand (averaging 3% for 2023-2024), thanks to stronger oil exports and credit growth. Stronger domestic demand will lend momentum to inflation in 2022. However, a gradual tightening of monetary policy from 2022 onwards will moderate inflation over the medium-term.


After a difficult 2020, Oman’s economy is on a solid path to recovery amid the easing of pandemic pressures, higher hydrocarbon outputs, and wide-ranging government reforms. Frontloaded fiscal reforms, including VAT, and cuts in spending are expected to turn the country's fiscal and current account deficits into surpluses, starting from 2022. Downside risks include any resurgent pandemic pressures, volatility in oil prices, and slower implementation of the government’s reform program. On the upside, rising hydrocarbon production, improved non-oil revenues, and the rationalization of expenditure could strengthen fiscal and external positions.

Recent Developments

Oman’s economy is recovering gradually from the dual impact of the pandemic and the temporary collapse in oil prices it caused. Estimates suggest that the country's overall growth reached 2.1% in 2021. Hydrocarbon GDP grew by an estimated 2.2%, driven by higher oil production due to the easing of OPEC+ cuts and the coming on stream of a new liquified gas plant in mid-2021. Non-oil GDP is estimated to have rebounded by almost 2% in 2021, signaling the recovery of domestic and external demand, aided by increased vaccine penetration that boosted the sectors most impacted by the pandemic (tourism, hospitality, and retail). Annual inflation switched from negative territory in 2020 and picked up to an average of 1.5% in 2021, due to the introduction of VAT last April and to improved domestic demand.


Oman’s economy is expected to improve gradually and to strengthen in the medium-term, supported by higher oil and gas production and ongoing structural reform. Growth is projected to pass 5% in 2022, underpinned by more than 8% growth in the hydrocarbon sector, boosted by the increased production of liquified natural gas in the key Ghazeer and Khazzan fields. The country's non-oil economy will continue to grow, exceeding 2% in 2022, as fast vaccine rollout strengthens domestic activity. Over the medium-term, growth will decelerate to an average of 2.7 % per year in 2023-2024, while the hydrocarbon sector will remain the main driver of growth.


The effects of the war in Ukraine on the commodity markets and of its associated economic sanctions are positive, on balance, for Qatar’s economy, the largest exporter of Liquid Natural Gas in the world. That aside, preparations for the soccer World Cup, scheduled for December 2022, have intensified diversification of the country's economy and bolstered non-oil activity despite the COVID-19 pandemic. Overall, however, Qatar's hydrocarbon dependence is likely to expand this decade, as its North Field facilities begin production. The possibility of new outbreaks of COVID-19, a spike in consumer price inflation, and rising US interest rates are likely to be modest downside risks given Qatar's high vaccination rates and sizeable sovereign financial wealth and reserves.

Recent Developments

Economic recovery is well underway and, despite temporary interruptions from COVID-19, real GDP grew by 3.0% in 2021, versus a 3.6% contraction the previous year, rebounding in the second quarter of 2021 at an annualized rate of 4% and remaining positive in the third quarter. The Purchasing Managers’ Index (PMI) stayed above 50 for all of 2021, reflecting economic expansion that reached a highpoint of 63 in November and has been above 57 ever since. Google mobility data experienced a short-lived dip during the most recent surge of the virus, but retail and recreation, and transit station and workplace mobility, recovered in February 2022 to pre-pandemic levels.


Real GDP is estimated to rise in 2022 to 4.9% on the heels of boosted hydrocarbon exports of 10%. Growth in private consumption may be slightly lower, at 4.8%, driven by potentially fewer World Cup proceeds and higher prices. Consumer prices are projected to jump by an additional percentage point in the current year.

United Arab Emirates

The United Arab Emirates (UAE) led the world in terms of its high vaccination rates against COVID-19, which, together with the gradual phasing out of OPEC+ oil production cuts and monetary and fiscal stimulus packages, led it to make a strong economic recovery in 2021. In the medium-term, the recovery will be bolstered by higher oil prices, triggered by the economic consequences of the war between Russia and Ukraine and its associated sanctions. The UAE authorities continue to make progress on fiscal and economic diversification. Risks include new coronavirus outbreaks, tightening global financial conditions, and oil sector volatility.

Recent Developments

Real GDP growth is estimated at 2.8% in 2021 following a contraction of 6.1% in 2020. Economic recovery has been aided by a successful vaccination program and fiscal and monetary stimulus measures that helped a rebound of domestic consumption. Dubai's quarterly GDP registered a growth of 6.3% (y-y) in Q3-2021. Hotel occupancy in Dubai increased, mostly because of the resumption of international travel. The Purchasing Manager’s Index (PMI) for October 2021 registered its highest reading since June 2019, with its score of 55.7 supported by increased activity related to Dubai's Expo 2020 and the loosening of COVID-19 restrictions. Economic recovery is expected to strengthen in 2022, despite the short-term dampening of buoyant sentiment due to the Omicron variant, as indicated by a slight dip in January’s PMI. The hydrocarbon sector also gathered pace as OPEC+ production quotas were eased; oil production went up by 8% in Q4-2021 compared to Q2-2021. The health situation improved in February 2022, with new COVID case falling below 800 a day (on a 7-day rolling average basis) for the first time since 2020, and over 95% of the population is fully vaccinated.


The economic consequences of the war between Russia and Ukraine and its associated sanctions have triggered an oil price surge, which will have positive implications for the UAE economy and its fiscal and external balances. However, tourism and the non-oil economy might face headwinds. Tourism and travel account for almost 20% of Dubai's GDP, and their revival is a policy priority. Russia became the third-largest source for Dubai’s travel and tourism sector in 2021, while Ukrainian tourists were also among the top 20, which presents downside risks for its non-oil recovery.