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Oil cuts hurt Oman GDP, say experts

Oman oilfield Shutterstock/Hussain Warraich
Decelerating oil production after Opec+ output cuts slowed Oman's GDP growth in the first quarter
  • Oman’s GDP growth will fall to 1.8% this year, BMI predicts
  • Opec+ oil production cuts had strong impact on economy
  • Rebound expected in 2024 as gas production ramps up

Oman’s GDP growth is set to slow this year as oil production cuts act as a “significant drag” on economic activity.

Growth is forecast to slow from 4.3 percent in 2022 to 1.8 percent this year, according to analysts at BMI, formerly Fitch Solutions. 

This is below the 10-year historical average of 3.1 percent before the Covid-19 pandemic.

The non-hydrocarbon economy grew from 0.7 percent year on year in the final quarter of 2022 to 4.6 percent in the first quarter of this year.

However, this was mainly because of weakness in the same period the year before, as the economy recovered from a 2.4 percent annual contraction.

BMI said growth will wane in the coming quarters because of tighter monetary policy, weakness in the labour market for nationals and cautious fiscal spending.

Its forecasts could dip again if further tightening in financial conditions in the US pushes Oman’s interest rates higher, experts cautioned. 

“We expect economic activity to recover in 2024 amid higher hydrocarbon production and a ramp-up in investment activity in line with plans to modernise the economy,” the analysts added in a research note.

In 2024, growth is expected to rebound to 2.6 percent as gas production is set to increase by 3.1 percent. 

Oil reliance

Scott Livermore, chief economist at Oxford Economics Middle East, told AGBI last month that the government needs to push ahead with reforms to broaden the tax base and encourage diversification.

He said Oman remains “almost as reliant as ever” on commodity exports, but that its outlook “has become more promising”.

Latest figures from the National Centre for Statistics and Information showed a deceleration in overall growth from 7.4 percent in the fourth quarter of 2022 to 4.7 percent in the first quarter of this year. 

The slower growth was mainly a result of a deceleration in oil production, which is expected to continue in the coming quarters due to Opec+ restrictions

BMI’s oil and gas team has revised its forecast for oil production growth in 2023 down from -1.1 percent to -2.5 percent following the most recent Opec+ cuts in June. 

While energy analysts have grown more bullish on their forecast for gas production, this increase will not be enough to offset declines in oil production.

Oman oil field near MuscatReuters
BMI’s oil and gas team has revised its forecast for oil production growth in 2023 down to -2.5%

Added to declining oil production is relatively sluggish growth in non-hydrocarbon exports, as new trade data showed a 3.2 percent contraction in the first five months of 2023. 

BMI expects Oman’s net exports will subtract 0.6 percentage points from growth in 2023, a significant reversal from a 2.1 percentage point positive contribution to its GDP growth in 2022.

Analysts also said that although private consumption in Oman will benefit from a sharp deceleration in inflation, it will face headwinds from a weakening labour market for nationals and cautious fiscal spending. 

BMI has adjusted its inflation forecast from 1.4 percent to 1 percent, which helped private consumption spending in the first quarter. Retail trade grew 5 percent compared with the previous year. 

But analysts added: “While we now see inflation on a lower trajectory, a weak labour market for nationals will offset positive benefits of a slowdown in prices growth for households.”

Data released in May showed that the number of Omanis working in the private sector contracted by 1.1 percent.

Analysts said the government is unlikely to create more jobs for nationals to remain cautious in its spending.

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