Kuwait - Mubasher: Capital Economics on Thursday said it expects inflation in Kuwait to rise to 3.3% by the end of 2017, and to 4.3% in 2018, compared to 3.2% in both 2015 and 2016.
The agency also expected Kuwait's gross domestic product (GDP) to shrink to 0.5% this year and 1% next year, compared to 2% in 2016.
For Saudi Arabia, inflation is expected to drop in 2017 to 2.0% and rise once more to 4.0% in 2018 compared to 2.2% and 3.4% in 2015 and 2016, respectively.
The UAE's inflation levels are likely to rise to 3.0% and 3.5% in 2017 and 2018, respectively against 4.1% and 1.8% in 2015 and 2016, respectively.
Qatar's inflation is expected to rise to 8.5% in 2017 but fall to 6.0% in 2018, compared to 4.8% and 6.4% in 2015 and 2016, respectively. Its GDP is estimated drop to 2.3% this year from 3.6% in 2015, while GDP for 2017 and 2018 are forecasted to increase to 2.5% and 2.8%, respectively.
In Oman, it is anticipated that inflation will rise to 1.3% in 2017 and 2.5% in 2018 from 1.1% in 2016, whereas GDP will fall from 5.7% in 2015 to an estimated 2.0% in 2016 and to 0.5% this year and rise once more to 1.5% in 2018, according to Capital Economics.
Finally, Bahrain's inflation, last seen at 2.8% in 2015, is forecasted to decline to 1.5% in 2017 and rise to 3.5% in 2018. Its GDP, however, is estimated at 3.5% for 2016 compared to 2.9% in 2015. Bahrain's GDP is seen at 2.0% for both 2017 and 2018, the report showed.
"Nonetheless, we think it’s unlikely that the region will enter a long bout of deflation…it seems unlikely that households would postpone spending," the report said.
The planned introduction of a Gulf-wide value-added tax (VAT) in early 2018 may prompt consumers "to bring forward spending decisions in the near term," Capital Economics added.
In the event that there were indicators of deflation becoming "entrenched", in most places, policymakers have the tools needed to boost demand.
"Monetary policy will need to tighten further as dollar pegs force the region to import higher US interest rates. But fiscal policy could be loosened in the major economies in the Gulf," according to the report.
The research firm expects Qatar, Kuwait and the UAE to record budget surpluses in 2017, whereas Saudi Arabia’s deficit "is likely to be significantly smaller this year" compared to 2015 and 2016.
This has allowed some governments "to reverse" some of the recent austerity.
Capital Economics notes that it does not see a risk of "a long damaging bout of deflation" in the GCC; however, it highlights that the threat is bigger in the smaller economies of Oman and Bahrain.
It noted that the balance sheets of those two oil-dependent countries were "weaker" and required further readjustment to low oil prices. "Growth prospects are correspondingly softer," it said.
"The big picture for the region, however, is likely to be one of persistently soft underlying price pressures rather than outright deflation," the report concluded.
