The economies of the GCC recovered in2018 despite signs of weakness in the global economicoutlook, reinforcing the perception that GCC economies'fortunes are still inextricably tied to oil. Global growthslowed in 2018, as trade tensions be-tween the U.S. andChina escalated, and goods trade slowed markedly. However,the steady increase in oil prices until October 2018 liftedgrowth in the GCC economies, from an average of -0.2 percentin 2017 to 2.0 percent in 2018. Two of the region'slargest economies Saudi Arabia and Kuwait, as well as Oman,emerged from recession in 2018. Growth outturns were drivenby higher oil production in the second half of 2018, highercapital investment made possible due to the rise in oilrevenues, and higher domestic demand. Fiscal and externalbalances improved, also tracking oil sector performance. GCCcountries' fiscal balances improved in 2018, aided bythe average increase in oil prices and progress with non-oilrevenue mobilization in some countries. This allowed mostcountries to reduce fiscal deficits while actuallyincreasing spending in some cases. Saudi Arabia, for examplewas able to halve its overall fiscal deficit in 2018 whilesimultaneously increasing total spending by 10.8 percent.Other countries also demonstrated procyclicality in fiscalpolicy, as spending increased across the GCC. Saudi Arabiaand the UAE implemented a 5 percent VAT in early 2018, andBahrain followed in early 2019. Oman introduced excise taxeson tobacco products, energy drinks and soft drinks inmid-2018 and increased corporate income tax.
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