The GCC looks likely to remain an “outperformer in the global context” next year, Emirates NBD said although it expects the region’s average GDP growth to slow to 3.5% in 2023.
The GCC countries have enjoyed a strong performance in 2022 on several fronts. The outlook for the GCC in 2023 also remains constructive.
Emirates NBD expects economic growth in the region to come in at around 7% on a nominal GDP-weighted basis, the fastest in over a decade. This has largely been driven by double-digit growth in oil production across the region as the pandemic-related production cuts were fully unwound.
“However the non-oil sectors have performed well too and we expect average non-oil GDP to reach 4.4% this year, similar to the growth rate achieved across the GCC in 2021, even as global growth has slowed this year,” noted Khatija Haque, head of research and chief economist at Emirates NBD.
Domestic demand has continued to rebound from the pandemic and the recovery in global travel and tourism has also supported the non-oil sectors, particularly in the UAE.
Expo 2020 contributed to strong growth in the UAE’s tourism and hospitality sectors in Q1, 2022, and the reopening of long-haul markets has seen visitor numbers rebound sharply from last year, although they remain around 15% below 2019 levels through September.
The FIFA World Cup is expected to support demand in Qatar in Q4, 2022 even as the global economy has started to slow.
The GCC budget performance has also improved significantly this year on the back of higher oil production and prices, as well as the broader economic recovery in the region, Emirates NBD noted.
"We estimate the average GCC budget surplus will reach almost 8% of GDP this year following seven years of deficits. While government spending has increased slightly this year, governments have so far been relatively prudent with their oil windfall, using budget surpluses to build up reserves, pay down debt and invest for the future, " it said.
The GCC countries have also provided financial support to other Mena countries that have faced current account shocks this year on the back of rising energy and food prices.
“The outlook for the GCC in 2023 remains constructive,” it said.
"GDP growth will slow sharply as the 16% increase in oil and gas GDP that we saw this year is unlikely to be repeated, and further production cuts from Opec+ pose a downside risk to growth in this sector in 2023. Non-oil GDP is also expected to slow somewhat next year but is likely to remain relatively robust as governments continue to invest in strategic sectors and projects to diversify their economies.
“Our baseline forecast is for oil prices to remain above $100/b next year, which will allow governments to maintain spending even as private investment slows,” Haque noted.
There are headwinds to growth in the coming months, however. The tightening in monetary policy that we’ve seen in 2022 will continue to weigh on global economic growth in 2023 as central banks focus on bringing inflation down.
Even with oil prices expected to remain relatively high, the region is not immune from slowing global growth, particularly given its position as a global trade and logistics hub.
“Higher borrowing costs may deter private sector investment in the region and a strong dollar will also erode competitiveness, making the region a more expensive destination for both foreign investors and tourists,” Emirates NBD said.