03 November 2022: With at least a third of the world’s population expected to experience recessions, the IMF expects 2023 to be the weakest year for global growth since 2009, aside from 2020. However, while the outlook for most countries has been revised down, GDP growth forecasts have been slightly revised up for the GCC. This is due in part to a combination of continued strong oil revenue for the oil-exporting nations, which will provide a buffer for their non-oil economies and allow them to run sizable fiscal surpluses, and inflation easing down, expected to average about 2.7% in 2023 across the GCC. This is according to the latest PwC Middle East Economy Watch - Q3 launched today.
In October, OPEC+ cut production for the first time since May 2020. Although this tapering hits the GCC oil-exporters the hardest, whose capacities have expanded since the baselines were originally set, these agreements have been maintained, in part because the immediate boost to price should largely offset the reduced volume and also because the agreement extends the OPEC+ pact for a seventh year. And should the global economic slowdown be even more than the IMF’s latest baseline forecast of 2.7% GDP growth, maintaining the agreement leaves exporters with options in the event of a demand shock. However, forecasts still anticipate solid demand growth of over 2m b/d in 2023, and the GCC continues to increase their output in line with their current capacities and future ambitions.
Stephen Anderson, Middle East Strategy and Markets Leader, commented: “It may seem strange that Middle Eastern oil exporters are focused on growing capacity at a time when they are investing in renewables and hydrogen, and announcing net-zero emissions targets. But most states in the GCC have production-to-reserve ratios of many decades and, if they can increase market share as the global demand declines, this can then be monetised to drive the energy transition. Oil production revenues can be reinvested in renewables, reducing domestic consumption of hydrocarbons and paving the way for the newer, cleaner and more sustainable energy economies of the future.”
Although the oil market provides added buoyancy for the oil-exporters, the region is not immune to the global squeeze and high inflation and rising interest rates are being felt, most severely by the oil-importers. Inflation hit an 11-year high of 4.5% in July in the GCC, but is still half the level of many Western countries and is easing off, with the exception of Qatar which is undergoing a short-term surge, particularly in rents, in the run up to the World Cup. Inflation is expected to trend down and average about 3.7% for the region in 2022, and the pegged exchange rates should continue to limit imported inflation. However the rise of interest rates in the region, mirroring the federal reserve, could have an impact on credit growth and aggregate demand.
Richard Boxshall, Middle East Chief Economist at PwC Middle East, commented: “The tourism sector has rebounded, with several countries receiving more visitors this year than their pre-pandemic 2019 figures. The Qatar World Cup will provide impetus not only in Qatar, which will receive over six months of tourists in just a month and with high levels of pre-visitor spending, but also for Dubai, Oman and Saudi Arabia, which will host some fans and benefit from the additional tourism dollars, providing a big boost to the start of the peak tourism season.”
Adding: “Helpfully, many GCC states are running sizable fiscal surpluses, but the higher interest rate hikes show that the region is not without its challenges on the eve of an expected global recession in 2023. In particular, there is a concern that the higher interest rates may provide a drag on economic growth at a time when they are looking to drive investment to diversify their non-oil economies.”
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