The Institute of International Finance (IIF) predicted that GCC countries will remain resilient despite headwinds.
According to the institute’s forecasts, in a report seen by Economy Middle East, it expects average oil prices to fall from $100 per barrel in 2022 to $85 in 2023 and $80 in 2024.
“We revised our growth forecast for 2023 for the GCC region, from 2.7 percent to 2.2 percent, due to the expected decline in oil production in Saudi Arabia, the United Arab Emirates, Kuwait, and Oman,” the report said.
However, non-oil growth is expected to remain robust (between 4-5 percent), driven by consumption and private investment.
Inflationary pressures will remain low at 2.6 percent, supported by pegged exchange rates, ceiling prices for food and fuel products, labor market flexibility (where foreign labor accounts for more than 60 percent of the workforce), and lower rental prices amid increased supply.
The weight of food in consumption baskets is relatively low in the GCC (less than 20 percent). In contrast, housing accounts for more than 25 percent of the CPI basket, according to the report.
“The impact of tightening global monetary conditions on Gulf banks will remain limited in an environment where oil prices are above $75 a barrel,” it said.
High oil prices also improve the domestic liquidity position, leading to relatively expansionary fiscal policies, and increased credit available to the private sector.
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The IIF estimates that the combined current account surplus will decrease from a peak of $373 billion in 2022 to $194 billion in 2023, due to lower oil export volumes and lower prices.
The combined fiscal surplus is expected to shrink from 6 percent of GDP in 2022 to 2.5 percent of GDP in 2023. “The expected improvement in non-hydrocarbon revenues, and continued rationalization of non-priority spending, may offset the decline in the volume of oil exports, resulting in lower fiscal balanced oil prices.”
The Institute believes that the current account and large fiscal surpluses will lead to more resident capital outflows, albeit much lower than in 2022. As a result, the total general foreign assets of the GCC countries will peak at around $3.3 trillion by the end of 2023.
The institute’s report notes that “non-resident capital flows fell from $142 billion in 2021 to $47 billion in 2022. Portfolios and other investments have declined significantly due to reduced financing needs by governments and non-financial public bodies. We expect an increase in capital inflows to $67 billion in 2023, driven by improvements in FDI inflows.”
“In the UAE, high FDI is driven by a friendly business environment, excellent infrastructure, predictable policies, and structural changes aimed at diversifying the economy and creating a dynamic and expanded private sector. Saudi Arabia has also significantly improved its business environment, which will help attract foreign direct investment.”
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