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How the pandemic is a defining moment for GCC economies

The IMF Middle East and Central Asia chief lays out a path to economic recovery and growth

We are in a crisis like no other. The Covid-19 pandemic and the plunge in global oil prices are posing a two-pronged challenge to the Gulf Co-operation Council countries. While reducing the pandemic’s health toll is the top priority, member states are also having to address the economic impact of these combined shocks through swift policy action and enhanced regional co-operation. But there can be opportunity in every crisis. If GCC countries act decisively – building on their tech-savvy, well-educated youth and rapidly expanding the digital economy – the region will emerge from this crisis with a stronger foundation for a more diversified economy in the future.

Indeed, the wide-ranging containment measures are helping to slow the spread of the virus. Some countries, such as Saudi Arabia and the UAE, have begun to gradually reopen certain businesses and lift curfews. Nevertheless, these containment measures, though necessary to protect the people, are having a devastating effect on job-rich sectors such as retail, hospitality and tourism, with consequent risks to financial systems and the broader economy.

The Purchasing Managers’ Index, or PMI, which measures economic trends in the manufacturing and service sectors, does not look promising. It is down some 12 per cent on average since January, which signals much weaker activity. Meanwhile, the Google Mobility Database indicates that retail and transportation have declined by an average of 40-60 per cent since early March.

In addition, oil prices have plummeted to historic lows in response to the collapse in global demand and uncertainty over the supply outlook. While Opec+, the group of petroleum-exporting nations, reached an agreement to reduce production by around 10 million barrels per day last month, global demand could decline by almost three times that amount compared with a year ago. This demand-supply imbalance is resulting in an unprecedented increase in inventories and downward pressure on prices. They have not been this low since 2001 and, if they remain at these levels, more than $160 billion of the GCC’s annual revenue could be wiped out.

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