With public finances enjoying a healthy surplus on the back of booming oil-based revenues, and consumer optimism despite economic headwinds, the Gulf Cooperation Council (GCC) is expected to buck the global recession impacting most of the economies worldwide, according to analysis by PwC.
In the first 2023 edition of their ‘Middle East Economy Watch’, economists from PwC – a leading global accounting and consulting firm – have outlined their forecast on how the GCC’s economy is expected to shape up this year.
As most major economies buckle up for yet 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 worldwide are expected to face recessions and continued inflation putting pressure on both government and household budgets,” said Richard Boxshall, Partner and Chief Economist at PwC. “At least a third of the world’s economies are set to enter / remain in a recession in 2023.”
Currently in a ‘polycrisis’ according to PwC’s latest CEO Study released earlier this week at the World Economic Forum in Switzerland, key challenges countries, governments, businesses, and people face include geopolitical tensions, a global energy crisis, continued supply chain disruption, and financial market volatility.
“Some Middle Eastern countries are facing these headwinds full on, but the GCC seems increasingly like as it looks set to buck the trends of the forecasted global recession. Building on their resilience and consumer optimism, GCC economies are expected to deliver their strongest growth in a decade in comparison with the majority of countries globally.”
According to PwC’s calculations, GCC economies will on average book 3.6 per cent GDP growth this year.
Late 2022, the IMF released a similarly rosy forecast, highlighting that the GCC’s first aggregate fiscal surplus since 2014 means governments are in a strong position to drive monetary policy geared at growth. Leading credit ratings agencies have taken a comparable stance on the GCC’s prospect in 2023, recently revising many credit ratings following years of downgrades in the aftermath of the previous oil boom.
Meanwhile, with oil prices likely to remain high (PwC’s economists expect the barrel price to hold at US$75-96 in 2023), GCC governments are using their financial muscle to “also work towards diversifying their economies to, eventually, decouple growth from oil prices,” said Boxshall.
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, and the industrial sector.”
With all eyes on the UAE as the host of COP28 later this year, Anderson said that the increased focus on the region and organisations will provide impetus for further reforms to invest in renewable energy, reduce energy consumption, and focus on sustainable finance as an enabler of the energy transition.