Economic growth in the GCC next year is seen slowing due to weaker global demand, despite the region’s resilience, a new report says.
The latest Economic Insight report for the Middle East, commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW) and compiled by Oxford Economics, reflects more muted projections for activity in the GCC economies, where growth is seen moderating to 2.5 per cent in 2023, as oil production stagnates.
While this represents a significant slowdown, it will remain above the average pace in the five years preceding the pandemic.
Noting that although the region has so far been able to withstand the pressures of the global economy, ICAEW International managing director Mark Billington expects the recent slowdown to have an impact on GDP growth.
“Continuing to increase investment in the non-oil sectors will help the GCC to remain resilient as we enter 2023,” he added.
Recent inflation figures for several of GCC’s economies show price pressures have peaked in the region and inflation is beginning to come down.
GCC inflation is forecast at 3.5% this year, up 0.2% on three months ago, before it slows to 2.6% in 2023 and stabilizes around 2% in the medium term.
Although inflationary pressures are easing, central banks across the GCC will want to protect the currency pegs to the US dollar. While the pace of tightening will likely slow from December, rates will likely be lifted higher than initially thought. This is a factor behind the expectation of non-oil GDP growth in the GCC slowing to 3.6% next year from 5% in 2022.
For the wider Middle East region, GDP growth is forecast at 2.7% in 2023, a downward revision from earlier due to the expectation of a global recession early next year, oil production cuts and rising borrowing costs.
The Middle East has so far withstood global challenges, mainly due to GCC countries’ ongoing gains from trade. However, against a worsening global backdrop – inflation squeezing household real incomes, borrowing costs soaring, winter threatening Europe’s energy supply, and China’s growth engines stuttering – demand is slowing.
As a result, forecasts for both oil and commodity prices have also been lowered. Oil price projection has been adjusted down to $102 per barrel (from $103.8), with Brent forecast expected to average $92.1 in 2023 against a forecast of $96.1 three months ago.
Oil prices are in constant fluctuation, balancing ongoing fears over the impact of China’s zero-Covid policy on demand with concerns over supply after Opec+ cut production by 2 million bpd in November, the largest cut since 2020.
However, tight supply will continue to support prices despite recession across many advanced economies.
Regional PMIs for October indicate GCC economies are off to a good start this quarter and domestic economic conditions across the Gulf should remain strong heading into 2023, helped by rising new orders and easing price pressures.
This should support business sentiment and further improvement in the labor markets – in the UAE, jobs are being created at the fastest pace since July 2016.
ICAEW economic adviser and Oxford Economics Middle East chief economist and managing director Scott Livermore said: “Despite the forecast lowering, the pace of growth is still projected to be higher than the world economy for 2023. Saudi Arabia will likely be one of the world’s fastest-growing economies this year as the economy benefits from higher oil prices. We are also seeing a demand for tourism across the region, supporting growth in the non-oil sector.”
