WB Raises GCC Growth Forecast for 2022

The economies of the GCC region are expected to grow by 6.9% this year – the fastest growth rate in a decade – followed by a slowing of growth to 3.7% in 2023, according to the World Bank. The bank has raised its 2022 growth forecast for the GCC region by one percentage point from its earlier estimate of 5.9% growth. The World Bank’s latest economic update, titled ‘A New State of Mind: Greater Transparency and Accountability in the Middle East and North Africa,’ finds that the region’s oil exporting countries are benefiting from high hydrocarbon prices. ‘The GCC countries are on track to grow by 6.9% in 2022, buoyed by high hydrocarbon earnings, slowing to 3.7% in 2023 as hydrocarbon prices subside,’ the World Bank said. The economies of the Middle East and North Africa (MENA) region are expected to grow by 5.5% this year – the fastest rate since 2016 – followed by a slowing of growth to 3.5% in 2023, the World Bank report said. Yet this growth is uneven across the region, as countries, still struggling to overcome the lasting effects of the COVID-19 pandemic, face jolting new shocks from higher oil and food prices brought on by the war in Ukraine, rising global interest rates, and slowdowns in the United States, China, and the Euro area, the report noted. Developing oil exporters in MENA, the World Bank said, are forecast to experience trends like those of the GCC but at lower levels—with 2022 growth expected to increase to 4.1%, led by Iraq, before falling back to 2.7% in 2023.

Developing oil importing countries are expected to grow by 4.5% in 2022 and 4.3% in 2023. However, the slowdown of growth in Europe poses a particular risk, as this group of countries relies more on trade with the Euro area—especially the North African oil importers closest to Europe: Tunisia, Morocco, and Egypt. According to the World Bank, MENA oil importers face heightened stress and risk from higher import bills, especially for food and energy, and tightening fiscal space as they spend more on price subsidies to cushion the pain of price rises on their populations. “All countries in the MENA region will have to make adjustments to deal with significantly higher prices for food and other imports, especially if they lead to an increase in government borrowing or currency devaluations,” said Ferid Belhaj, World Bank’s vice president for the MENA region. “What countries need now is smart governance to weather the storm and begin to rebuild after multiple shocks on top of the pandemic.” Roberta Gatti, World Bank’s chief economist for the MENA region, said, “Moving towards greater data transparency and accountability is a game changer for the region; it can help countries identify what is working and needs improvement and to act on it. It will help them manage risk and shape progress towards a more sustainable and inclusive future.”

Across the region, policymakers have introduced measures – especially price controls and subsidies – to make the domestic price of certain goods, such as food and energy, lower than the global price. The World Bank report finds that this has had the effect of keeping inflation in MENA lower than in other regions. The World Bank said that governments will incur additional expenses as they increase subsidies and cash transfers to mitigate the damage to the living standards of their populations from higher food and energy prices. ‘For the GCC and developing oil-exporting countries, this is not of much concern now. Windfall increases in state revenues from the rise in hydrocarbon prices have greatly increased their fiscal space and will result in fiscal surpluses for most oil exporters in 2022 – even after the additional spending on inflation mitigation programs,’ the bank added.