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According to the latest PwC Middle East Economic Watch, the GCC economies are expected to experience a global slowdown, although the global economy is expected to face weaker growth and the possibility of a recession, as well as persistent inflationary pressures.
With oil prices expected to remain strong, relatively low inflation, fiscal surpluses and aggressive transformation plans, the outlook for the GCC in 2023 is favorable.
Five key trends outlined in PwC’s five GCC economic themes to watch in 2023 will shape the region’s economic performance and growth over time.
The trend is:
* The Gulf Cooperation Council will emerge from a global slowdown, with a third of the world’s economies expected to slip into recession. Global growth is expected to slow to 2.7%. In contrast, forecasts for the GCC for 2023 are more optimistic, with GDP expected to grow by 3.6% this year, according to the International Monetary Fund.
Continued high oil prices (likely to remain at $75-96 per barrel in 2023), combined with the region’s first fiscal surplus since 2014, the combination of strong “twin” surpluses is driving the expected strong economic growth. Credit rating agencies share that confidence, as many credit ratings in the GCC were upgraded after years of downgrades following the last oil boom.
* A recovery in the non-oil economy, with the Purchasing Managers’ Index (PMI) remaining in expansionary territory in 2022, continuing into 2023 as GCC economies continue to diversify. This is supported by national visions for the region, industrial strategies, and various tourism initiatives that will further boost growth. For example, the Kingdom of Saudi Arabia is investing heavily in secular tourism, while the UAE’s Tourism Strategy 2031 and Oman’s Economic Vision 2040 both seek to strengthen the region’s position as a leading global tourism destination.
* The unprecedented pace of rate hikes by the Federal Reserve, mostly reflected in GCC countries, has put significant pressure on market liquidity. This is expected to be temporary; liquidity conditions ease with corrective actions in 2023 as countries adjust to a tighter monetary policy environment.
* We will also see continued efforts to green the GCC economies accelerate this year, as countries’ collective progress towards Paris Agreement goals is assessed as part of the global stocktake. The new momentum ignited by Egypt’s COP-27 will build as the region prepares to take center stage again at COP-28 in the UAE.
The report expects to see further investment and policy interventions to increase the share of renewable energy in power generation and drive the greening of the economy.
*With greater emphasis on localization of the private sector workforce, and increases in national labor force participation, especially in Saudi Arabia and the UAE, and high-skilled jobs, the battle for local talent will intensify.
Richard Boxshall, Partner and Chief Economist, said: “2022 will be characterized by significant uncertainty, including geopolitical tensions, a global energy crisis, ongoing supply chain disruptions and financial market turmoil. The GCC economies are resilient and are expected to post their strongest growth in a decade compared to most countries globally. While high oil prices are likely to persist, GCC governments are also working to diversify their economies and ultimately grow their economies Decoupling from oil prices.”
Stephen Anderson, Partner, Head of Middle East Strategy and Markets, added: “GCC countries are working hard to maintain momentum in their non-oil economies through coordinated policy interventions and investments. and development strategies are excellent examples of GCC countries’ efforts to increase the economic contribution of non-oil sectors such as tourism, exports, the industrial sector and the green economy. With Dubai hosting COP28 later this year , as the region seeks to reduce energy consumption, invest in renewable energy, and advocate for sustainable finance, increased attention across the region will provide impetus for further green reforms.” – trade arab news agency
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