Oil production cuts prompt World Bank to cut regional growth forecast

Growth expected to slow to 2.2% versus 3.5% in previous estimates
Oil production cuts prompt World Bank to cut regional growth forecast
Oil production cuts

The expected slowdown in the growth rate of oil-exporting economies prompted the World Bank to lower its forecast for the growth of Arab economies in 2023, while raising its estimate for growth forecasts next year.

The World Bank expects growth in oil exporters to slow to 2 percent in 2023, a significant cut from previous forecasts, and a recovery of 3.2 percent in 2024, according to an updated forecast released Tuesday from the Global Economic Prospects.

The announced cuts in oil production in 2023, which are expected to be phased out in 2024, represent a large part of the revised forecast.

The oil exporting countries within the “OPEC+” alliance announced last April a voluntary cut of about 1.16 million barrels per day from last May until the end of the year, before amending the extension of the cut to the end of 2024.

Thus, the World Bank estimates that the economies of the Middle East and North Africa will grow by about 2.2 percent this year, compared to 3.5 percent in the previous estimate issued last January.

It attributed this decline saying that the Middle East and North Africa (MENA) region started 2023 with steady but slow growth.

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It added that oil-exporting countries, which have witnessed high growth rates over a decade, and low unemployment rates over the past year, announced cuts in their oil production, and oil-importing countries faced several challenges, most notably high inflation rates, with growth slowing significantly in 2023.

But the World Bank was optimistic about next year, raising the region’s projected economic growth rate by 0.6 percent to 3.3 percent before slowing again to 3 percent in 2025.

Expected growth of oil countries

The World Bank said that as the recovery enjoyed by oil exporters faded as a result of higher oil prices and declining global demand, growth in oil production has slowed rapidly from high levels recorded in late 2022.

According to the World Bank, Saudi Arabia witnessed a decline in output growth from high rates in mid-2022 to 3.9 percent in the first quarter of 2023, supported by non-oil activities.

It cut its forecast for Saudi economic growth by 1.5 percent to 2.2 percent from his previous forecast in January but raised its forecast for 2024 by 1 percent to 3.3 percent.

Iraq’s economy is expected to contract by 1.1 percent this year against previous growth expectations of about 4 percent, the largest cut in expectations, in light of its contribution to the voluntary reduction of oil production within the “OPEC+” alliance and the cessation of Iraqi Kurdistan oil exports of 500,000 barrels per day.

Oman was second in lower growth forecast by 2.4 percentage points this year.

The World Bank expects the UAE’s growth to slow to 2.8 percent from 7.9 percent last year.

Oil-importing economies

The World Bank also said that oil-importing economies continued experiencing negative conditions until 2023, with average consumer price inflation reaching levels not seen in more than a decade during the first half of the year.

In Egypt, the World Bank argues that the country’s limited access to foreign exchange and a shift to a more flexible exchange rate led to the loss of the pound about half of its value between the beginning of 2022 and May 2023.

High costs, difficulties in securing imported inputs, and slowing global demand have weighed on the country’s economic activity, with industrial production (excluding oil) contracting in the year to January.

In Morocco, it said that the continued drought and high inflation rates have weakened growth, with unemployment rates rising in March 2023 to rates above the peak reached during the outbreak of the Corona pandemic.

Global Economy

In terms of the global economy, the World Bank says global growth has slowed sharply.

It predicted global growth would slow from 3.1 percent in 2022 to 2.1 percent in 2023.

Among emerging markets and developing economies other than China, growth is expected to slow to 2.9 percent this year from 4.1 percent last year.

These forecasts reflect a broad decline.

Commenting on the report, newly appointed World Bank Group President Ajay Banga said, “The surest way to reduce poverty and spread prosperity is to raise employment – and slower growth makes job creation more difficult. It’s important to keep in mind that growth prospects are not inevitable, we have a chance to turn things around, but we all need to work together to make that happen.”

“The global economy is in a precarious situation, and with the exception of East and South Asia, we still have a long way to go to reach the dynamism needed to eradicate poverty, tackle climate change, and rebuild human capital,” said Indermit Gill, Chief Economist and Senior Vice President of the World Bank Group.

He predicted that trade in 2023 will grow at less than a third of its pace in the years before the pandemic.

“Emerging market and developing economies are increasingly under high-interest rate pressure. Fiscal weaknesses have already pushed many low-income countries into critical indebtedness. At the same time, financing needs to achieve the SDGs far exceed optimistic private investment expectations.”

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