According to a report released on Tuesday by Oxford Economics, the rollout of coronavirus vaccines in the Middle East should allow for a return to relative normalcy in the second half of 2021, while much of the region's economies will benefit from higher oil prices and stronger external demand.

The vaccine deployment has been inconsistent across the country, but it has gone particularly well in the UAE and Bahrain, where a relatively high ratio of the population has been vaccinated compared to neighboring countries and foreign counterparts.

“Overall, GCC GDP will rise by 1.4 % in 2021, following a contraction of 5.4 % in 2020,” according to the ICAEW-commissioned Oxford Economics survey.

According to the Economic Update survey, the Middle East's GDP is expected to grow at a rate of 2.5 % this year, which is close to the average rate between 2010 and 2019. (2.6 %). This follows a 5% decrease in 2020, which was unexpected.

Oxford Economics forecasts a strong economic recovery in the UAE, with non-oil GDP growth expected to exceed 5% in 2022. The widely anticipated success of Expo 2020, which has been postponed for October this year, will allow Dubai to recover quickly. Improved ties with Qatar and Israel would also increase the number of visitors.

Although vaccine deployments are progressing, Middle Eastern governments must continue to grow sectors and industries that generate capital worth for the economy, according to Michael Armstrong, ICAEW regional director. “In these tough times, rising non-oil sales is a difficult challenge, so creativity would be crucial to the region's economic growth.”

According to Scott Livermore, chief economist at Oxford Economics, the pandemic, brought Middle Eastern economies to a halt in the first quarter of 2020. Today, we are inspired by the measures being taken by regional governments to restore normalcy. The continued instability in the global economy brings more pressure on oil-dependent economies to raise non-oil revenues. To recover rapidly, governments must remain constructive and continue to help their economies with pro-growth measures.

Expectations of stronger activity and increasing demand have boosted optimism, driving oil prices up to $66 per barrel in late February (up from a low of $9 per barrel in April 2020), according to the survey. The outlook for oil prices has also been bolstered by continuing supply restraint from Opec+ members. The group intends to raise output only slightly in the coming months to maintain supply reductions, with Saudi Arabia continuing to maintain a voluntary output cut of 1 million barrels per day through April.

The current oil price level is still significantly lower than what the GCC was used to. It is offering relief to budgets and easing the pressure to continue fiscal consolidation. In the face of persistently low oil revenues, some governments, such as Oman and Saudi Arabia, would reduce spending.

According to the report, the deficit financing requirements will decrease in 2021, many nations will continue to borrow from foreign debt markets to fund diversification programs or refinance maturing debt at cheap rates.