GCC deficit could reach $250bn with a 16% drop in non-oil output

Recent forecasts of the impact of COVID-19 have looked optimistic We have built a model to estimate the impact of COVID-19 on the GCC states in different scenarios There is a great deal of uncertainty around the duration and intensity of the shock and we don’t pretend to know the answers, but what we believe to be reasonable assumptions points to fairly severe outcomes for the GCC In our baseline, we assume a  23% drop in non-oil output for 6 months and an oil price of $30 on average in 2020-21 In this scenario our model suggests that the GCC will run annual fiscal deficits of around $250bn or 20% to 21% of GDP in 2020 and 2021 based on announced fiscal policy with non-oil output contracting 16% in 2020 and 4% in 2021 (with data transparency what it is in the GCC, it is probably unlikely that official statistics would ever reflect such poor numbers) A more optimistic scenario can be envisaged if the OPEC+ deal holds, oil prices average higher and the shock is shorter and less intense than expected In the optimistic scenario, we would expect the GCC to enact more stimulus and as a result non-oil GDP growth would be stronger, only contracting 6% in 2020 and rising 2% in 2021 Conversely, if the shock is worse than expected and oil prices were to collapse to average $20 in 2020-21, GCC states would likely reduce spending even further, keeping the aggregate deficit capped at around $250bn,……...