The International Monetary Fund (IMF) projects that the UAE and Saudi Arabia will play pivotal roles in driving the short-term growth of the non-oil sector in the GCC. The report emphasizes their leadership in the face of a robust GCC region, fueled by increased domestic demand, higher gross capital inflows, and ongoing reform implementations.
UAE’s Resilient Non-Oil Growth: 5.9% Surge
Strong Domestic Demand
The UAE has showcased a robust non-oil growth, recording an impressive 5.9% surge in the first half of 2023. This growth is attributed to the country’s strong domestic demand, reflecting the resilience of its economy.
Saudi Arabia’s Non-Hydrocarbon GDP Growth: Averaging 4.5%
Driving Economic Momentum
Saudi Arabia, a key player in the region, witnessed an average non-hydrocarbon GDP growth of around 4.5% in the first half of 2023. This growth is contributing significantly to the economic momentum of the country.
GCC’s Combined Non-Hydrocarbon GDP Growth: 4.3% Estimate for 2023
The IMF projects a combined non-hydrocarbon GDP growth of 4.3% for the GCC region in 2023, following a strong surge of 5.3% in 2022. However, oil production cuts are anticipated to impact the overall GCC GDP growth, slowing it down to 1.5% in 2023.
Ongoing Reforms and Financial Landscape
Impact on Non-Oil Revenues
The IMF underscores the positive impact of ongoing financial and structural reforms in the GCC countries, contributing to the rise in non-oil revenues. Fiscal balances remain healthy, supported by reforms and favorable oil prices.
Policy Recommendations for GCC’s Economic Landscape
Addressing Near-Term Shocks and Long-Term Challenges
To navigate near-term shocks and uncertainty, the IMF suggests prudent fiscal policies, alignment with the US Federal Reserve’s monetary policy, and structural reforms focusing on diversifying away from hydrocarbons. The report emphasizes fiscal consolidation, non-oil revenue mobilization, and energy subsidy phase-out.
Medium-Term Strategies: Fiscal Consolidation and Structural Reforms
Ensuring Intergenerational Equity and Sustainability
In the medium term, the IMF recommends that GCC countries continue pursuing fiscal consolidation consistent with intergenerational equity and sustainability. Non-oil revenue mobilization, energy subsidy phase-out, and strengthening social safety nets are highlighted as essential components of this strategy.
Inflation, Fiscal Balances, and Economic Transformation
Key Indicators and Structural Shifts
The IMF report notes that inflation remains contained, with expectations of 2.6% in 2023 and 2.3% in 2024. Fiscal balances are deemed healthy, supported by reforms and high oil prices. Structural shifts, including diversification efforts and investments in digital and green initiatives, are crucial for economic transformation.
Non-Tradable Goods Inflation: Regional Dynamics in 2023
Factors Driving Inflation
In 2023, non-tradable goods inflation takes center stage as the main driver of the region’s headline inflation. Strong economic activity and rising housing costs are identified as key factors. The report highlights the unique dynamics in real estate prices in Dubai, Saudi Arabia, and rental trends in Kuwait.
Labor Market Dynamics: Wage Growth and Expatriate Workers
Factors Influencing Wages
The IMF acknowledges that wage growth has remained contained, attributing this to a relatively elastic supply of expatriate workers and increased labor force participation in the GCC. The report notes the absence of wage-price spirals, emphasizing the unique dynamics of the labor market in the region.