DUBAI: The economies of most of the six-member Gulf Cooperation Council (GCC) are expected to remain smaller next year than they were in 2019, resulting in persistent pressure on businesses in the region, S&P Global Ratings said on Tuesday.
Companies, including infrastructure firms, are set to focus on recuperating 2020’s losses and largely halt new investments in 2021, the ratings agency said.
“Absent a substantial recovery in revenue generation, they are likely to focus on cost optimization, proactively managing their liquidity, and presering their cash flows, while new investments will continue to take a back seat in most sectors,” S&P said.
“After suffering a major contraction in 2020, we expect aggregate real GDP growth of just 2.5% in the GCC economies between 2021 and 2023.”
The GCC comprises Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain.
Nearly two-fifths of the non-financial companies and infrastructure firms rated by S&P in the GCC region carry a negative outlook. When excluding government-related entities – 17 of the 32 rated entities – that rises to nearly three-quarters, reflecting governments’ strong role in the region’s economies.
Real estate and oil field services represented around half of S&P’s negative rating actions in 2020.
Cash-conservation trends seen last year are expected to continue through 2021 amid slow growth, including reducing or deferring capital expenditure, cutting or eliminating dividends and monetising assets to decrease leverage, according to S&P.
The resolution of the dispute between Qatar and Saudi Arabia, the UAE, Bahrain and Egypt is expected to be positive for Qatar’s real estate and tourism sectors, S&P said, though it added: “we think it is too early to expect demand for these two sectors to improve significantly.”
High COVID-19 vaccination rates in the UAE could help its tourism sector recover earlier than others. Normalisation with Israel has also created “major opportunities for cooperation”, particularly in Dubai.
“Although the UAE implemented several structural measures in 2020 that are supportive of its long-term business prospects, we still expect the recovery in the key sectors powering Dubai’s economy to take time,” S&P said.