In its latest edition of the Middle East Economy Watch, PwC reveals that the Middle East’s economy continues to demonstrate resilience despite challenges stemming from oil output cuts and geopolitical turbulence. The report underscores the upcoming strength of the non-oil sector, buoyed by a robust non-oil gross domestic product (GDP) performance in 2023 and solid Purchasing Manager Indices (PMI) in key economies such as Saudi Arabia and the UAE in early 2024.
The report also emphasizes the potential of green finance in supporting economic diversification, job creation and attracting foreign direct investment (FDI) across the region. It highlights three main themes, which include:
Oil output cuts and non-oil sector resilience
Despite OPEC+ members’ decision to extend production cuts into the second quarter of 2024, the non-oil sector in the Middle East remains resilient. The Middle East Economy Watch expects oil production cuts to lead to a contraction in the Middle East’s oil sector in 2024. For example, Saudi Arabia has paused its plans to increase oil production capacity due to the supply and demand dynamics. This move will allow it to invest more capital in alternative energy projects, including gas and renewable energy sources.
“Oil demand plays a key role in influencing the growth of oil-exporting Middle East countries. Nonetheless, strong growth in the non-oil sector is expected to counterbalance these impacts,” stated Richard Boxshall, partner and chief economist, PwC Middle East.
Besides, Qatar has announced plans to expand its liquefied natural gas (LNG) capabilities with the North Field West project. This marks a significant stride in Qatar’s strategy to enhance its LNG production capacity. Moreover, it further cements the country’s position in the global LNG market. With gas gaining more optimistic prospects than oil, its appeal is rising due to its lower carbon emissions.
Trade corridors
Disruptions to Red Sea trade have reignited discussions surrounding alternative trade corridors. Proposals such as the India-Middle East-Europe Economic Corridor (IMEC) and Iraq’s Development Road are on the table. However, the Middle East Economy Watch states that progress on either initiative is contingent upon the resolution of current conflicts.
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Green financing
Green financing is gaining momentum in the Middle East, following the success of COP28 and the introduction of green finance frameworks. the Middle East Economy Watch reveals that the issuance of green bonds and sukuk in the Middle East doubled to $24 billion in 2023, led by the UAE and Saudi Arabia. Moreover, Oman’s publication of a sustainable finance framework and Qatar’s forthcoming debut green bond further underscore the region’s commitment to sustainability and economic diversification. In addition, Saudi Arabia is considering a sovereign green issuance, in addition to the large sums the PIF raised.
For his part, Stephen Anderson, partner, Middle East strategy leader, PwC Middle East, said: “The region is increasingly focusing on sustainability, aligning with net zero ambitions and the imperative for economic diversification. The growth in green finance is a strong indication of this focus and has the potential to enhance the region’s appeal to foreign investors.”
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