The latest activity data suggest that non-oil sectors in the two largest Gulf economies, Saudi Arabia and the UAE, are starting to recover from their slumps in early 2016. Both countries have been major beneficiaries from the OPEC deal in November to cut output. While they reduced oil production at the start of this year as the deal came into force, the impact on overall energy export revenues has been more than offset by the 20% rise in oil prices since the agreement was announced. If oil output and prices were to stay at their current level throughout 2017, we estimate that combined oil export revenues would be more than US$35bn (around 3.5% of GDP) higher than they were in 2016. The increase in oil revenues has allowed governments to ease fiscal austerity. Indeed, the Saudi government has resumed payments to contractors, which has reportedly allowed some construction projects to restart. And ‘whole economy’ PMIs for both countries have risen over the past few months.
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