Saudi Arabia is projected to clock the highest non-oil sector growth in 2023, closely followed by the UAE within the GCC grouping, a leading economist said.
However, in terms of overall GDP (gross domestic growth) growth numbers, Saudi Arabia is expected to be impacted the most if the additional oil cut target announced by the country in May persists in the second half of the year.
The GCC growth projections for the rest of the year comes amidst economists seeing a likely sharp slowdown in headline GDP growth numbers in the third quarter of the year as well due to the oil production cuts.
The Economic Insight report compiled by Oxford Economics and commissioned by ICAEW estimated the pace of GDP growth in the region dropped to 1.9 percent in Q2 from 2.8 percent in the previous quarter due to the slowdown in energy output.
“Headline GDP growth is likely to have slowed quite sharply in Q2 and Q3 as the impact of OPEC+ production cuts is felt,” Scott Livermore, Chief Economist and Managing Director at Oxford Economics and Economic Advisor to ICAEW, told Arabian Business.
“However, the non-oil economy [in the GCC region] is proving more resilient despite the impact of aggressive monetary tightening feeding through. This is indicated by the trend in the PMIs,” Livermore said.
GCC growth prospects in rest of 2023
On the growth prospects in the remaining part of 2023, Livermore said the headline picture is skewed by a country’s dependency on oil and the size of production cuts being implemented.
“Both factors weigh on Saudi GDP growth especially if the additional 1mb/d cut announced in May persists in 2023H2,” he said.
On the other hand, Qatar is more dependent on gas which has different market trends and supports headline growth, he added.
“However, in terms of non-oil GDP growth, the strongest performer will be Saudi Arabia and then the UAE,” Livermore said.
The Oxford Economics chief said the improved non-oil sector performance in GCC is mainly due to the support from the public sector as governments pursue growth and diversification agendas, particularly in the UAE and KSA.
More bold economic reforms expected to boost growth this year
Livermore said the UAE, in particular, has been bold over the past couple of years in taking several policy measures to boost growth prospects.
“This is not only about spending, but also business, visa and social reforms that make the country an attractive place to live, work and invest,” he said.
The Oxford Economics chief said Saudi Arabia seems to be following a similar path, although we see a greater emphasis on investing.
“The critical thing is that oil prices remain above fiscal breakeven leaves, which means that the region’s governments can stay the course.
“We are likely to see a continued flow of megaprojects being announced across the Gulf,” Livermore said.
He said the GCC is still very dependent on oil and it will take time to diversify the economy and tax base.
“The critical aspect is to maintain the path set and continue investment in infrastructure and develop new sectors such as green energy, travel and tourism, creative industries and technology.”
Livermore said even the travel and tourism sector – identified as an important pillar of growth and diversification plans – will need to evolve across the Gulf in order to further boost growth prospects.
“This will consist of more sustainability, increasing the number of nights per visit and boosting regional and local tourism,” he said.
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