Middle East Economy Watch - May 2023

The regional economy has bounced back since the 2020 pandemic, and is in many ways now stronger and more resilient than ever. In this edition, we examine how the non-oil sectors in the GCC have largely recovered back to or beyond their levels prior to the pandemic, even in the most seriously affected sectors such as transport and hospitality. 

This has been aided by the recovery in tourism, most notably in Saudi Arabia and Qatar, which are hitting new record levels. The expatriate population in the region has also rebounded strongly, particularly in Oman. These sources of domestic and external demand have contributed to the economic recovery.

However, worries remain at the global level as persistent inflation, high interest rates and geopolitical uncertainty weigh on the outlook, which the IMF described as a “rocky recovery” in its latest economic outlook. The GCC region is somewhat insulated from these concerns, supported by high oil prices and strong balance sheets at the sovereign and corporate levels. However, the wider Middle East is more vulnerable to these trends.

In any case, the GCC states are earnestly pressing ahead with efforts to diversify their economies, and achieve their National Visions. Healthy public finances are providing resources to invest in these visions, including the recent transfer of another 4% of Aramco equity to the Public Investment Fund to help finance its giga-projects. The decision by OPEC+ to implement additional voluntary production cuts from May to support oil prices, although less welcome for the oil-importing countries in the region such as Egypt, has strengthened GCC governments’ fiscal positions.

Alongside financial resources, highly motivated leadership across the GCC is a driving force behind the progress of these long-term economic visions, including newly framed goals of moving towards net-zero domestic emissions. And while the World Bank expects global growth to fall to 2.8% this year, with slowdowns to 1.3% in more advanced economies, the GCC should perform better at 3.2%, further enabling re-investment in national visions.