Five key trends to shape GCC economies in 2023, as the region escapes the global slowdown

18 January 2022; Dubai, UAE:

While the global economy is expected to face weak growth and the possibility of recessions, as well as continued inflationary pressures, GCC economies are expected to weather the global slowdown, according to the latest PwC Middle East Economy Watch. 

With the expected continuation of robust oil prices, and relatively low inflation, fiscal surpluses and active transformation programmes, the outlook looks positive for the GCC in 2023. And as the year progresses, there are five key trends that will shape the region's economic performance and growth, as outlined in PwC’s Five GCC economic themes to watch in 2023.

Firstly, the GCC will escape the global slowdown which is expected to see a third of the world's economies pulled into recessions. Global growth is projected to slow to 2.7%. Conversely, forecasts for the GCC in 2023 are more upbeat, with 3.6% GDP growth expected this year, according to the IMF. A combination of continued high oil prices, which are likely to hold at US$75-96 per barrel in 2023, alongside strong “twin” surpluses as the region registers its first fiscal surplus since 2014, contribute to the robust economic growth predicted. This confidence is shared by the credit ratings agencies, as many credit ratings are revised up across the GCC following years of downgrades in the aftermath of the previous oil boom. 

Secondly, the resurgence of the non-oil economy, where Purchasing Managers’ Indices (PMI’s) remained well in expansion territory in 2022, will continue at pace into 2023 as the GCC economies continue to diversify. This is underpinned by national visions, industrial strategies and various tourism initiatives across the region that will boost growth further. The Kingdom of Saudi Arabia, for example, is making huge investments in non-religious tourism, while the UAE’s Tourism Strategy 2031 and Oman’s 2040 Economic Vision all seek to firmly cement the region as a leading tourist destination globally. 

Thirdly, the unprecedented speed of increase in the Federal Reserve rate, which has been largely mirrored in the GCC countries, has put significant pressure on market liquidity. This is expected to be temporary; liquidity conditions will ease with corrective action in 2023, as countries adjust to a tighter monetary policy environment. 

We will also see an acceleration in the continuing efforts to green the GCC economies this year, as countries' collective progress towards achieving the goals of the Paris Agreement will be assessed as part of the Global Stocktake. The renewed momentum ignited at COP-27 in Egypt will intensify, as the region prepares to take center-stage once again at COP-28 in the UAE. We expect to see further investments and policy interventions to increase the share of renewables in electricity generation and to drive the greening of the economy.

Finally, the war for local talent will intensify as greater emphasis is given to the localisation of the private sector workforce, in tandem with the increase in labour force participation amongst nationals, particularly in Saudi and the UAE, and in high-skilled roles.

Commenting on the latest Economy Watch, Richard Boxshall, Partner and Chief Economist, said: “2022 has been characterised by huge uncertainty, marked by geopolitical tensions, a global energy crisis, continued supply chain disruption and financial market volatility. However, the GCC economies are proving resilient, and are expected to deliver their strongest growth in a decade in comparison with the majority of countries globally. While high oil prices are likely to continue, GCC governments are also working towards diversifying their economies to, eventually, decouple growth from oil prices.”

Stephen Anderson, Partner, Middle East Strategy and Markets Leader, added: “The GCC countries are working to maintain the momentum for the non-oil economy through concerted policy interventions and investments. 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, the industrial sector and the green economy. And with Dubai as the host for COP 28 later this year, the increased focus on the region as a whole will provide impetus for further green reforms, as the region seeks to reduce its energy consumption, invest in renewables and champion sustainable finance. ”

The newly released “Middle East Economy Watch - Q1 2023” can be read here while the new blog article exploring the “Five GCC economic themes to watch in 2023” can be read here.