GCC Growth Outlook Lowered Due to Fall in Crude Production

The economic performance of GCC countries weakened in the second quarter of 2023 due to reduced oil outputs under an OPEC+ agreement, according to a new report. Projections for GCC growth this year have been scaled back by 0.5 percentage points to 1.4%, as revealed in the latest Economic Insight report for the Middle East. The report was commissioned by ICAEW and compiled by Oxford Economics. The pace of GDP growth in the Middle East region has been downgraded by 0.4 percentage points, and it is forecasted to slow to just 1.7% this year. Despite the slowdown, optimism prevails as the region’s non-oil activity remains robust.

‘Nonetheless, there are encouraging indicators in the non-oil sector and domestic demand. Businesses have reported growth in their customer base and employment. However, this positive performance may face challenges due to the impending impact of high-interest rates on consumption and private investment,’ the report said. Growth in the GCC region’s non-energy sector is demonstrating significant resilience, primarily fueled by the tourism-related sectors. Data shows double-digit expansion in transport, storage, accommodation, and food services.

Energy prices recently have seen strong gains, with the Brent oil price rising to US$90 per barrel, the highest since November 2022. This is a result of support from Chinese stimulus measures, robust US demand, and deeper supply cuts. Saudi Arabia has extended its voluntary 1mn barrels per day (bpd) oil production cut through the year-end, while Russia has also pledged to reduce its oil exports further. Consequently, ICAEW has adjusted its oil price projection, raising the average Brent oil price estimate for this year to US$83.10 per barrel, compared to the forecast of US$81.5 per barrel three months ago.

Hanadi Khalife, head of Middle East at ICAEW, said, “This [second] quarter has been challenging for the region, marking weaker growth than initially predicted. However, looking forward, the planned inclusion of Saudi Arabia and the UAE into the BRICS group next year is expected to create new opportunities for increased trade and investment. This development will also help reduce their reliance on the US dollar, offering a positive outlook for the future.”

Scott Livermore, ICAEW economic adviser and chief economist and Managing Director at Oxford Economics Middle East, said, “The recent energy cuts have had a pronounced impact on the economic outlook for this quarter. As a result, 2023 is forecasted to be the GCC’s weakest year for the energy sector since 2017, excluding the exceptional circumstances of 2020.”

The ICAEW report also noted the favorable level of GCC inflation in recent months, due to a decline in food and fuel prices. However, despite the outlook of inflation normalizing, interest rates are expected to remain at the same levels, as the GCC currency pegs to the US dollar, preventing regional central banks from cutting rates before the Federal Reserve starts its easing cycle.