GCC fiscal deficit could reach $250bn in 2020 with a 16% drop in non-oil output

GULF COUNTRIES - Forecast 22 Apr 2020 by Rory Fyfe

Recent forecasts of the impact of COVID-19 have looked optimistic. We have built a model to estimate the impact of COVID-19 on the GCC states in different scenarios. In our baseline, we assume a 23% drop in non-oil output for 6 months and an oil price of $30 on average in 2020-21. In this scenario our model suggests that the GCC will run annual fiscal deficits of around $250bn or 20% to 21% of GDP in 2020 and 2021 based on announced fiscal policy, with non-oil output contracting 16% in 2020 and 4% in 2021. A more optimistic scenario can be envisaged if the OPEC+ deal holds, oil prices average higher, and the shock is shorter and less intense than expected. In the optimistic scenario, we would expect the GCC to enact more stimulus and as a result non-oil GDP growth would be stronger, only contracting 6% in 2020 and rising 2% in 2021.

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