S&P Global Ratings expects Gulf Cooperation Council (GCC) oil, gas, and chemicals companies' earnings to rebound in 2024 even as the non-oil sector earnings growth take a plunge from 15% last year to 7% in 2024.

 

“We forecast average aggregate EBITDA growth of about 5%-10% for rated GCC companies in 2024 and 2025, outpacing real GDP growth. This compares with an estimated dip of about 5%-10% in 2023 from 2022,” S&P said. 

 

The dip reflects a weaker performance in the oil, gas, and chemicals sectors (65%-70% of aggregate GCC corporate EBITDA) in 2023, due to lower commodity prices in the petrochemicals sector and the normalisation of fertiliser prices. 

 

Pricing momentum

"We expect that this sector will benefit from a recovery in pricing momentum in 2024 and companies' expansion plans. For the national GCC oil companies, we expect an increase in upstream capacity to continue to drive investments, while they maintain relatively strong balance sheets. We anticipate that demand for the petrochemicals industry will remain subdued until the second half of 2024. We also expect continued oversupply in the industry, albeit improving from 2023 levels. We believe that rated GCC chemical producers' leading positions, low-cost competitive advantage, and healthy balance sheets should mitigate inflationary pressure and rising borrowing costs. Even with the recent announcement of higher feedstock prices for Saudi chemical producers, we do not expect a materially negative impact on profitability.”

 

“We expect rated non-oil companies' earnings to have grown by about 3%-4% in Saudi Arabia and 5%-15% in the UAE in 2023, boosted by mergers and acquisitions and momentum in the real estate market,” S&P said.

 

The continued growth, although lower than in 2023, reflects regional governments' efforts to diversify their respective economies away from hydrocarbons. Steady growth in international tourism and positive demographic trends will resonate across multiple sectors in the GCC region, including hospitality, retail, and airlines. The most recent data signals that the number of international visitors is on track to exceed 2019 figures in Saudi Arabia, the UAE, and Qatar. 

 

Population growth

“We expect healthcare, education, food and beverage, and leisure operators to capitalise on population growth, as low reported inflation of 1.5%-2.0% will sustain consumer spending. It is difficult to predict how the geopolitical situation will play out, and this could pose some risks to our forecasts,” S&P said.

 

Sustained demand for real estate in the UAE and large Saudi cities has led to significant price increases over the past two years, benefiting real estate developers.--TradeArabia News Service