According to estimates from Bloomberg, Saudi Arabia and the United Arab Emirates had the fastest-growing economies in the region because they were able to increase their oil production by 15% each year.
In spite of a slowdown in growth caused by a slower expansion of the energy sector and a weaker external environment, it is anticipated that the Gulf region will perform better than many developed economies in 2023.
Due to an increase in oil production and expansion of the non-oil sector, the regional economies performed admirably last year, expanding at the fastest rate in almost a decade.
Khatija Haque, head of research and chief economist at Emirates NBD Research, stated, “On a nominal-GDP weighted basis, we estimate GCC real GDP growth at 7.4% in 2022, more than double the growth rate achieved in 2021.”
According to estimates from Bloomberg, Saudi Arabia and the United Arab Emirates had the fastest-growing economies in the region because they were both able to increase oil production by 15% last year.
Haque estimated that the GCC non-oil sector economy would expand by 5.6% in 2022 due to a strong recovery in tourism and travel, which would support growth in a variety of other service industries. A rise in the UAE’s population, as indicated by a number of indicators, would also have boosted domestic demand.
The Emirates NBD’s prediction is in line with the most recent regional forecast from the International Monetary Fund (IMF), which projects growth of 3.6% in 2023, down from 6.5% last year, with the non-oil sector slowing by 0.3% to 3.7% this year.
According to the IMF, GCC governments are anticipated to save approximately 33% of oil revenues on average.
This year, Emirates NBD Research anticipates 3.3% growth for the region.
“Given the weaker external environment, the outlook for 2023 is more cautious, but the GCC will likely continue to outperform many developed economies in terms of GDP growth.” Although oil and gas output growth is expected to slow this year, the sector should once again contribute positively to headline GDP in 2023 if continued investment is made to increase production capacity in the region, according to Haque.
Emirates NBD Research anticipates a slowdown in non-oil sector expansion in the region. Due to the impact of slower global trade and higher interest rates having an effect on consumption and private sector sentiment, it anticipates that growth in the United Arab Emirates will slow to 3.5% this year from an estimated 5.6% in 2022.
It anticipates that Brent oil prices will remain “elevated” this year, reaching $100 per barrel on average.
“Supply remains constrained in the context of years of underinvestment in infrastructure and capacity, despite the fact that oil has started 2023 on the back foot due to fears of a global recession. Additionally, tighter oil supplies may be caused by international sanctions against Russian energy exports. According to the report, “oil demand may well surprise on the upside in H2 2023” as a result of China’s sudden relaxation of the most stringent Covid-zero restrictions.
Capital Economics senior emerging market analyst Jason Tuvey predicts that non-oil sector growth will also slow this year as tighter monetary policy, a global recession, and reopening effects wear off.
However, “we think this will provide scope for governments to keep fiscal policy loose, cushioning the slowdown,” and “but oil prices should hold up well.”