With public finances enjoying a healthy surplus on the back of booming oil revenues and consumer optimism despite economic headwinds, the Gulf Cooperation Council (GCC) is expected to buck the global recession that has hit most of the world’s economies, according to an analysis by PwC.
In the first edition of its Middle East Economy Watch, economists at PwC – a leading global professional services firm – outline their forecast for the GCC economy this year.
As most major economies brace themselves for another year of economic and financial hardship (recession, high inflation, public finances under pressure, etc.), the authors describe the GCC as “an island of calm in this storm”.
“Many countries around the world are expected to face recessions and continued inflation, putting pressure on the government and household budgets,” said Richard Boxshall, partner and chief economist at PwC. “At least a third of the world’s economies will enter or remain in recession in 2023.”
According to PwC’s latest CEO Survey, released earlier this week at the World Economic Forum in Switzerland, the world is currently in a “polycrisis”, with geopolitical tensions, a global energy crisis, ongoing supply chain disruptions, and financial market volatility among the key challenges facing countries, governments, businesses, and people.
“Some countries in the Middle East are facing these headwinds head-on, but the GCC is increasingly looking like it will buck the trends of the predicted global recession. Building on their resilience and consumer optimism, the GCC economies are expected to post their strongest growth in a decade compared to most of the world.”
According to PwC’s calculations, the GCC economies will post average GDP growth of 3.6% this year.
At the end of 2022, the IMF issued a similarly rosy forecast, highlighting that the GCC’s first aggregate budget surplus since 2014 means that governments are in a strong position to pursue a pro-growth monetary policy. Leading rating agencies have taken a similar view of the GCC’s prospects in 2023, recently upgrading many credit ratings after years of downgrades following the previous oil boom.
Meanwhile, with oil prices likely to remain high (PwC economists expect the price of a barrel of oil to remain between $75 and $96 in 2023), GCC governments are using their financial muscle to “also work on diversifying their economies to eventually decouple growth from oil prices”, Boxshall said.
Stephen Anderson, Partner, and Middle East Strategy and Markets Leader added: “The GCC countries are working to maintain the momentum of the non-oil economy through concerted policy interventions and investments. The national visions and economic and development strategies in Qatar, the UAE, Saudi Arabia, and Oman are excellent examples of the GCC countries’ efforts to increase the economic contribution of non-oil sectors such as tourism, exports, and industry”.
With all eyes on the UAE as it hosts COP28 later this year, Anderson said the increased focus on the region and organizations will provide the impetus for further reforms to invest in renewable energy, reduce energy consumption and focus on sustainable finance as an enabler of the energy transition.