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The GCC economies will expand moderately in 2023 as oil production cuts and tighter policy take their toll amid global challenges, economists said.
The pace of economic growth in the region is expected to more than halve to 2.8 per cent in 2023, from 7.5 per cent last year as energy output growth slows markedly and high inflation and greater borrowing costs weigh on demand and economic activity, economists said in their Economic Insight report commissioned by ICAEW and compiled by Oxford Economics.
Despite the slowdown, ICAEW’s estimate for the GCC is slightly higher than the 7.1 per cent expansion in 2022 and 2.5 per cent in 2023 it reported three months ago. This is due to stronger growth performance at the end of last year, particularly in Saudi Arabia and the UAE. New data published recently revealed the kingdom's economy grew by 8.7 per cent last year, making it one of the fastest-growing economies in the world.
In its latest World Economic Outlook update, the International Monetary Fund said that economic growth in the Middle East and North Africa will slow to 3.2 per cent this year from 5.4 per cent in 2022, before rising to 3.5 per cent in 2024.
The growth projection for the region mirrors the global slowdown caused by higher interest rates and Russia’s war in Ukraine and is mainly attributable to a “steeper-than-expected” growth slowdown in Saudi Arabia. It is also lower than the estimated 3.6 per cent growth projection that the IMF released in October last year.
Hanadi Khalife, head of Middle East, ICAEW, said continuing to increase investment in the non-oil sectors will not only help the GCC countries to remain resilient this year, but will be vital in achieving the net-zero pledges which, for many, sit at the heart of their economic visions.
Scott Livermore, ICAEW economic advisor, and chief economist and managing director, Oxford Economics Middle East, said with oil sector gains exhausted, non-oil activity is again leading the GCC recovery.
“The overall picture painted by the latest PMIs is positive, helped by strong sentiment and contained price pressures.”
“We are particularly upbeat on Saudi Arabia, where the National Investment Strategy underpins the growth and investment outlook and indicators of consumer spending point to ongoing strong recovery. Meanwhile, the UAE's policies in support of expansion in key sectors, embedded in the ‘We the UAE 2031’ vision, will drive growth,” said Livermore.
According to the Insight report, the slowdown in the GCC will become more pronounced as oil production cuts and tighter policy take their toll. The latest PMIs show the GCC entered 2023 with strong momentum, supported by healthy demand and sentiment, even as slower global growth weighs on export orders.
The oil price estimates have also been lowered, with Brent forecast now seen averaging $85pb this year, against the forecast of $92.1pb three months ago. Crude oil prices have been weighed down by continued strength in the dollar and concerns about projections for global demand, though China’s surprise reopening following the pandemic lockdowns has offset some of the downward pressure.
Opec policy is again weighing on GCC energy output growth, which is expected to slow to just 0.5 per cent in 2023. The oil sector was the key driver behind last year’s exceptional GDP performance, rising by 11 per cent, led by production gains in larger GCC producers.
The report noted that travel and tourism will remain supportive of non-oil activity. “Recovery in inbound travel is expected to continue this year, as countries invest in tourism development opportunities. That said, a full recovery to 2019 levels isn’t likely until 2024, particularly as the stronger dollar has made the region more expensive for visitors.”
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