2017 & 2018 Economic Outlook for the Top Oil Producing Countries

2017 & 2018 Economic Outlook for the Top Oil Producing Countries

A couple of months in to the OPEC deal to cap oil production, we thought it would be interesting to take a look at the latest news and forecasts on oil prices and how top oil producing countries’ economies are performing in light of it all.



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As is often the case with the energy sector, crude oil has been at the forefront of the news of late. For the last few years the story has centered on the global crude oil price plunge that started back in mid-2014, eventually bottoming out in January of last year, falling to the lowest level in over a decade. Uncertainty over the health of the global economy as well as the feared economic slowdown in China that began in mid-2015, led to a decline in global demand and consumption of oil. Oil producers continued output desperately trying to gain precious market share from others in the sector, even as prices continued to fall.




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As mentioned previously, oil prices bottomed out in late January when, on 20 January, the OPEC oil basket price fell to USD 22.5 per barrel. This marked the lowest price since 2002 and represented a 47.8% drop on an annual basis. Not to long after, oil prices began to rally on improving sentiment among investors that the global oil oversupply was gradually easing. Oil supply disruptions in some key producers, a more negative outlook for oil output in the United States and resilient demand from emerging-market nations also supported the upward trend in prices. This situation partially reversed in late June as the UK vote to leave the European Union reverberated across the globe and fueled market volatility. However, the global risk aversion in the aftermath of the Brexit vote diminished and an agreement to freeze production between major oil producers finally came to frution in late November, which caused oil prices to rally at the end of 2016 into this year.

Prices were sent skyrocketing after the deal announcement was made, however, the oil price rally that continued into early 2017 has lost impetus recently in response to an increase in supply in non-OPEC countries and a slower-than-expected drain on inventories. On 10 March, Brent Crude Oil prices traded at USD 50.7 per barrel, which was down 8.9% from the same day in February. The benchmark price for global crude oil markets was 8.2% lower on a year-to-date basis, but still was up 31.2% from on the same day last year. On 10 March, WTI Crude Oil prices settled at USD 48.0 per barrel, which was 10.8% lower than on the same day of the previous month. Down 10.6% on a year-to-date basis, the WTI recovery continues as the price was 27.2% higher.

A positive for the deal is that OPEC members have proved compliant, surprising the markets which had initially doubted they would adhere to the cuts. This means that a substantial volume of oil has been taken off the market, however recent data show that the drop in global inventories is slow, given rising U.S. stocks. On 7 March, Saudi Arabia and Russia presented a united front on compliance, acknowledging that global crude inventories are not draining as quickly as expected, but insisting that the cuts will work. Saudi Arabia has expressed concern that its participation in the international agreement to cut crude output is reinvigorating rivals in the U.S. shale industry, which is a development that has the potential to undermine efforts to stabilize the global oil market. As oil prices have increased in the past months, U.S. producers have deployed more drilling rigs, which could cause a rebound in supply. 

Indeed, the U.S. Energy Information Administration (EIA) released its petroleum status report on 8 March, which showed that U.S. commercial crude inventories increased in annual terms by 37.6 million barrels in the week ending 3 March, maintaining crude oil inventories at 528.4 million barrels, which is the highest level since the EIA began keeping records in 1982. The current production cuts by OPEC producers and non-OPEC key players, such as Russia, are expected to drive crude oil prices to over USD 55.0 per barrel this year. However, at that price U.S. shale producers are likely to ramp up production since it is a break-even point for them. The EIA lifted its forecast for U.S. crude oil output, saying next year it will top the all-time record set in 1970. 

FocusEconomics analysts expect Brent Crude Oil to average USD 58.7 per barrel and WTI Crude Oil to average USD 57.7 per barrel in Q4 2017.

So, with all of the above said, how are the top oil producing country’s economies expected to perform this year amid all this news surrounding oil? Let’s take a look…


The National Bureau of Statistics will not publish the regular set of economic data for January until next month, but other relevant economic indicators suggest that growth momentum is moderating slightly following Q4’s strong outturn. As the economy fared relatively well in 2016, Chinese authorities are gradually shifting their focus from supporting growth to tackling rising systemic risks. On 3 February, the Central Bank decided to use its monetary tool box and hiked a series of short-term interest rates. This move has been widely seen as an attempt to reduce excessive risk taking and support the yuan. The National People’s Congress is expected to provide a clearer view of the top leadership’s economic tone for this year on 3–5 March, including the economic targets for 2017.

While growth will decelerate slightly this year, China will continue to be the best performer among all major economies. However, risks are now titled to the downside as the implementation of protectionist policies by the U.S. administration could hurt China’s all-important export industry, while years of cheap money has exacerbated economic imbalances. FocusEconomics panelists forecast that the economy will grow 6.4% in 2017. In 2018, the panel expects GDP to slow to 6.1%.

Read more on the Chinese economy

United States

Upbeat economic data continue to emerge from the U.S. economy despite the turbulent political atmosphere. Leading indicators suggest that activity is firming in the first quarter of 2017 after GDP growth slipped in the final quarter of last year. The ISM manufacturing index rose to an over-two-year high in February, retail sales grew healthy and February marked another month of strong growth in employment. Consumer sentiment even hit its highest level in over 15 years in the same month, despite the uncertain political backdrop. Meanwhile, details of President Donald Trump’s budget have begun to emerge. White House officials revealed in a phone call to reporters that the document contains an enormous boost in defense spending, which will be balanced by cuts to other federal agencies. However, social welfare programs such as Medicare are expected to be spared from cuts. Tax reform is likely to be included in a fuller budget proposal later in the year.

Solid consumer spending and stronger energy-related investments should drive an acceleration in growth this year and the FocusEconomics panel sees GDP expanding 2.3%, above 2016’s 1.6%. The outlook was left unchanged from last month. For 2018, the panel sees growth picking up slightly to 2.4%.

Read more on the U.S. economy


Preliminary data suggest that the Russian economy absorbed the dual shocks of lower oil prices and the continuation of Western sanctions last year with fortitude, contracting just 0.2% in 2016. A tighter fiscal and monetary policy and a flexible exchange rate ensured the smaller-than-expected economic contraction. There are further indications that the nascent economic turnaround in the final quarter of 2016 continued at the beginning of this year, as industrial production expanded in January and the manufacturing and services PMIs continued to indicate an expansion in the sectors. At a NATO conference in Munich on 18 February, Russia’s Foreign Minister Sergei Lavrov announced Russia’s agreement for a fresh ceasefire in the conflict in the Donbass region. That said, on the same day, the Kremlin announced that Russia will recognize travel and other documents issued by separatist groups in the eastern areas of Ukraine. Although Lavrov’s announcement was welcomed, Russia’s recognition of such documents was condemned by Western powers.

The Russian economy responded exceptionally well to adverse shocks last year, emerging from a protracted recession. Economic growth is expected to strengthen this year supported by higher oil prices and Russian authorities’ determination to persist in their prudent policymaking. Economists project the economy to expand 1.3% in 2017, which was revised up by 0.1 percentage points from last month’s forecast. For 2018, the Consensus projects GDP accelerating to a 1.7% expansion.

Read more on the Russian economy

Saudi Arabia

Saudi Arabia has continued to implement oil production cuts in compliance with OPEC’s 30 November deal. In January, oil production fell below the 10 million barrels per day mark for the first time since February 2015. Lower production is expected to drag on the all-important oil sector throughout this year. On the upside, an improved outlook for oil prices and signs of stronger global growth are propelling activity in the non-oil sector. In February, the PMI for the non-hydrocarbon sector remained firmly entrenched in positive territory. Interbank rates declined markedly in February, signaling improving liquidity conditions following the liquidity crunch that persisted for most of last year. Moreover, improving economic conditions will ease some of the austerity that plagued growth in 2016.

Sharp reductions in crude production associated with the OPEC oil deal will bring the economy to decelerate to multi-year lows this year. However, looking further ahead, growth will benefit from higher oil prices and the government’s initiatives to promote the non-oil sector. FocusEconomics Consensus Forecast panelists expect that the economy will grow 0.5% this year, which is unchanged from last month's projection. Next year, the panel sees GDP growth accelerating to 1.9%.

Read more on the Saudi economy

United Arab Emirates

The UAE’s economy has shown renewed vigor at the start of 2017, with the country’s PMI rising in February to a 17-month high on the back of stronger domestic and external demand. This follows an uptick in economic activity in the final quarter of last year thanks largely to a boost in oil production. However, growth for 2016 as a whole is likely to have been fairly lackluster as a result of low oil prices, significant fiscal consolidation in Q1 and the strong dirham, which hurt the country’s tourism sector. In February of this year it was revealed that the UAE is thus far failing to comply with OPEC-agreed oil production cuts of 139,000 bpd. However, the government has pledged to improve compliance over the six-month duration of the supply cut.

Growth is likely to rise slightly this year, driven by a predicted uptick in investment, while the oil sector will be hampered by production cuts agreed as part of the OPEC deal despite a modest uptick in prices. Looming interest rate hikes linked to the U.S. Federal Reserve’s monetary normalization will partially counteract the healthy performance of the non-oil sector. FocusEconomics panelists expect GDP to rise 2.5% in 2017 and 3.2% in 2018.

Read more on the Emirati economy


The dynamics of Latin America’s largest economy are bleak. The economy failed to make significant gains in the fourth quarter of last year and GDP recorded another steep contraction, holding the country in its worst recession on record. High unemployment, austerity measures and tight monetary policy are hampering a recovery and data for the first quarter of 2017 point to muted gains. Industrial output shrank in January and business confidence fell in February, while consumer confidence and the manufacturing PMI both improved in the same month. In a bid to support the economy, the government launched an infrastructure concession program this month that seeks to kick-start investment for infrastructure. The program will begin on 16 March with auctions for a number of the country’s airports and hopes to raise over USD 14 billion in new investments.

GDP is poised to return to growth this year thanks to lower inflation, improved confidence and a less-tight monetary policy. However, the improvement will be marginal due to high unemployment and austerity measures and political noise remains a risk to the outlook. Analysts see GDP growth at 0.6% in 2017, which is unchanged from last month’s forecast. The recovery is seen gaining speed in 2018 and GDP should increase 2.3%.

Read more on the Brazilian economy


Mexico’s economy is in the frontline of the new U.S. administration’s veer towards protectionism and anti-immigration policies and this is causing huge uncertainty and concern in the country, given its dependence on the U.S economy. Despite relatively solid macro fundamentals, economic growth disappointed last year and recent data indicate the country is walking on quicksand at the beginning of the year. Whatever position the Trump administration eventually adopts regarding trade and immigration policies towards Mexico, it will take several months for any policy changes to actually materialize. This uncertainty in itself will affect business and investor confidence, with investment suffering a negative shock. Already shaken by the fuel price increase in January, consumer confidence is also likely to remain low, hurting private consumption.

Under these conditions, and since economic policy will remain restrictive this year, Mexico’s growth prospects are eroding. FocusEconomics’ Consensus Forecast for 2017 GDP growth was cut by 0.1 percentage points to 1.5% in our March survey, while the projection for 2018 was left unchanged at last month’s 2.1%.

Read more on the Mexican economy


Monthly GDP figures show that the Canadian economy rebounded in November, beating market expectations and more than offsetting the drop recorded in October. The improvement was the result of strong performances by the manufacturing and mining sectors, which had contracted in October. Recent monthly indicators suggest that the economy continued its good momentum at the start of 2017: In January, the labor market added an impressive amount of jobs, even though markets had expected a fall, and housing starts reached a four-month high despite tighter mortgage rules. Housing prices continued to rise in January, although at a more modest pace.

The economy will accelerate this year on the back of higher oil prices, accommodative monetary policy and an expansionary fiscal stance. Similarly, a weaker currency and rising external demand will likely fuel Canadian exports. Our panelists expect GDP to expand 1.9% in 2017, which is unchanged from last month’s estimate. In 2018, the panel sees growth at 2.0%.

Read more on the Canadian economy


The Kuwaiti Parliament is currently examining legislation that would scrap the subsidy cuts introduced last year in an effort to rein in the country’s large fiscal deficit. The move is at odds with region-wide efforts to end the era of generous subsidies, which had been predicated on high oil prices, and prepare for a post-oil future. Should the measure pass—the government has vowed to fight the move—it would become difficult for the government to deliver on the USD 6 billion reduction in the country’s fiscal deficit foreseen in its recently passed budget for FY2017/18. As part of the government’s efforts to bring its public finances under control, the cabinet instructed the Ministry of Finance to implement an expenditure ceiling.

Publicly-backed investment, part of the government’s wider strategy of diversification, will support the economy this year, as will strengthening oil prices. FocusEconomics Consensus Forecast panelists expect GDP to increase 1.5% in 2017, which is down 0.1 percentage points from last month’s forecast. For 2018, panelists see GDP growing 2.5%.

Read more on the Kuwaiti economy


Economic sentiment in Iraq is slowly improving on the back of increasing oil prices and the successful battle against the Islamic State (ISIL) in Mosul. In February, the World Bank reiterated its financial support to the government but underlined that conciliation between ethnic groups is essential for long-term stability, and will become even more so in the aftermath of an eventual defeat of ISIS. The Bank intends to run projects aimed at reducing social tensions in parallel to rebuilding infrastructure. On 24 February, S&P Global Ratings confirmed its B- rating and stable outlook as it praised Iraq’s fiscal consolidation efforts supported by the IMF. Meanwhile, Russian petrol giant Rosneft is seeking new deals to buy crude oil from the Kurdish north of Iraq and is looking into building drilling sites in the area in the longer term.

Although growth will slow this year on the back of government austerity and lower oil production in compliance with the OPEC deal, higher crude prices and the progress against ISIL are supporting economic sentiment. Analysts project GDP growth of 1.9% in 2017, which is up 0.2 percentage points from last month’s projection. For 2018, they expect growth of 3.4%.

Read more on the Iraqi economy


Iran’s economy rebounded during the first half of SH 2016, which began on 20 March, boosted by a surge in oil production due to the lifting of economic sanctions. However, growth in the non-oil sector was meagre, reflecting the limited access to credit and continuing structural weaknesses in the economy, while unemployment remained painfully high. In a recent staff visit to the country, the IMF lauded Iran’s recovery to date, while at the same time flagging up the urgent need to reform the financial sector and to ween the economy off its dependence on oil. On the political scene, tensions continue to run high with the U.S. after the country slapped punitive sanctions on Iran in early February, which risks deterring vital foreign investment.

Economic growth going forward should remain brisk, propelled by higher oil prices and greater foreign and domestic investment. However, rising tensions with the U.S. are clouding the economic outlook and risk derailing Iran’s recovery. Panelists expect GDP to expand 5.3% in SH 2016 and 4.5% in SH 2017.

Read more on the Iranian economy

What's to come for the top oil producers

Knock-on effects of low oil prices had significantly affected the economies of most of the countries above. That said, low oil prices are only part of the story; many of the economies above have suffered from underlying weaknesses that the low-oil price environment has only exacerbated. Looking into the future, despite the fairly underwhelming effects on oil prices so far from the OPEC deal oil prices have risen significantly from the lows of early 2015 and are expected to gradually recover through this year and into next. However, uncertainty still remains and uncertainty in economics is seldom a good thing.


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Date: March 15, 2017

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