Saudi’s external financials to remain strong in 2019 despite low oil prices: IIF

The external positions in 2019 will remain strong in Saudi Arabia, UAE, Kuwait and Qatar, despite the lower oil prices, the Institute of International Finance (IIF) said in its report on Wednesday.

Resident capital outflows will continue to exceed nonresident inflows, IIF said, adding “While external pressures on Bahrain will be cushioned by the financial aid from its neighbors, Oman is emerging as an increasingly vulnerable spot in the region given its large twin deficits and growing debt”.

IIF expects Brent oil prices to average $65 a barrel in 2019 if the OPEC+ agreement is fully implemented.

However, it said, with US oil shale fields facing an average breakeven price of around $50 a barrel, expansion of drilling in the US could lower oil prices further beyond the near term.

Global trade tensions are likely to indirectly hinder GCC growth, IIF added.

“While GCC integration in global supply chains is low, shielding it from the direct impact of tariffs on input costs, a protracted global economic slowdown would reduce the demand for oil and consequently the price.”

Overall, in the GCC, expansionary fiscal policy will continue to drive non-oil growth, as fragile investment sentiment and regional tensions continue to hinder growth of the private non-oil sector, IIF said.

“Following the recovery to 2.3 percent in 2018, we expect overall growth to moderate to 2 percent in 2019, dragged down by compliance with the recent OPEC+ deal to cut oil production from October 2018 levels starting January 2019,” IIF maintained.

IIF said higher oil prices in 2018 enabled temporary improvements in the external and fiscal positions.

“We see the aggregate current account surplus declining from $153 billion in 2018 to $86 billion in 2019 due to lower oil prices and export volumes,” it added.