GDP in GCC states to recover modestly; corporates will be under pressure

      Published on Friday, 12 February , 2021      1200      
GDP in GCC states to recover modestly; corporates will be under pressure

  • Business

After a very challenging 2020 amid the COVID-19 pandemic and oil price shock, GCC economies are expected to grow moderately this year, according to a report by S&P.

However, corporate sectors will continue to feel pressure, particularly the companies operating in tourism, aviation, real estate, and non-food retail.

Revenue generation for the larger oil, gas, and commodities sectors, including oil field services will remain under pressure relative to 2019, S&P said.

“Given the negative operating outlook, we expect most corporates to maintain conservative strategies. Absent a substantial recovery in revenue generation, they are likely to focus on cost optimization, proactively managing their liquidity, and preserving their cash flows, while new investments will continue to take a back seat in most sectors,” S&P Global Ratings credit analyst Timucin Engin said.

The global ratings agency expects economic pressures to continue and recovery to be slow and gradual.

“After suffering a major contraction in 2020, we expect aggregate real GDP growth of just 2.5 percent in the GCC economies between 2021 and 2023. We expect Brent oil prices to average $50 in 2021 and 2022 and $55 in 2023 and thereafter,” Engin said. 

The priority of GCC corporates this year will be to recuperate 2020 losses, while operating in a slow-growth environment.

“We expect most companies will face revenue-growth challenges in 2021 amid a lack of visibility on the timing of a recovery and COVID-19-related uncertainties,” Engin said.

S&P expects the recent resolution of the Qatar dispute to be positive for Qatar’s real estate and tourism sectors. “We think it is too early to expect demand for these two sectors to improve significantly. We still expect that a full recovery in the global aviation and tourism industries will take time; hence these sectors remain most exposed,” he said.

As vaccine rollouts in several countries continue, S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic and its economic effects.

Widespread immunization, which certain countries might achieve by midyear, will help pave the way for a return to more normal levels of social and economic activity, S&P said in the report.

The UAE is reportedly leading the vaccination effort in the region, with an immunization rate of above 25 percent of the population, the second-highest globally. High vaccination rates could help the UAE tourism sector recover earlier than others globally.

Reporting by Seban Scaria


Category Business, Gulf News | 2021/02/12 latest update at 11:00 AM
Source : Zawya | Photocredit : Google
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