Middle East Economy Watch

The IMF expects 2023 to be the weakest year for global growth since 2009, aside from 2020, with at least a third of the world’s population experiencing recessions. However, while the outlook for most countries has been revised down, GDP growth forecasts have been slightly revised up for the GCC in 2023.

Continued strong oil revenue is expected to enable higher government spending, providing a buffer for the non-oil economy. Nonetheless, higher interest rates, which largely track the Federal Reserve rate, do present a potential barrier to access to credit. 

More positively, inflation may have already peaked in the GCC, at less than half the level seen in the US, and is expected to rapidly ease towards a modest 2% annual rate - with the exception of the oil-importing countries in the region, such as Egypt, who are facing more challenging inflationary trends.

After a brief wave in the early summer, coronavirus levels are once again low across the GCC and some countries have recorded few or zero deaths for several months. This is one factor contributing to a rebound in the tourism sector, which in several GCC states is now above 2019 levels, even before the anticipated boom in November from the Qatar World Cup.

In this report, we also look in detail at developments in the hydrocarbons sector as OPEC+ implements its first new cuts since May 2020. The organisation has extended its cooperation agreement into 2023 to be able to respond if the global slowdown puts pressure on demand, although the current expectation is that there will still be solid growth in oil demand.

The OPEC+ cuts, entering their seventh year, cannot continue forever. The GCC and Iraq are bearing more than their fair share of the cuts due to production baselines that are low relative to their full production capacities. Most of them are investing heavily in expanding capacity which will further widen the gap between quota and capacity—for example by 2030 the UAE may have a capacity as high as 6 million barrels per day (b/d), twice its current OPEC+ allocated quota. This will add further pressure on OPEC+ to revise up the baselines.