IMF: Growth in GCC Non-Oil GDP Will Not Fully Offset Oil Declines

Non-oil activities will be the key growth driver in the GCC region in 2023 and subsequent years, but will not fully offset a medium-term decline in oil growth, the International Monetary Fund said. GDP growth in the oil- and gas-exporting GCC is expected to slow in 2023 to 1.5%, the IMF said in its Regional Economic Outlook, as oil GDP declines on crude production cuts and lower prices. Overall growth is expected to recover to 3.7% next year.

Non-oil growth is projected at 4.3% in 2023 and 4.0% next year. "Non-oil activity is set to be the (region's) main growth driver," the report said. But this will not fully offset oil growth declines over the medium term, "as productivity gaps in the non-oil sector persist, posing challenges for job creation and inclusion." All six GCC governments have committed to diversifying their economies away from hydrocarbons but public finances remain sensitive to oil price moves, despite reforms.

"Given the cyclicality of the oil price, reducing the dependence on oil revenues is something all GCC countries and all oil-exporting countries should be managing," Jihad Azour, director of the IMF's Middle East and Central Asia Department, told Reuters. OPEC kingpin Saudi Arabia is likely to post a fiscal deficit this year, after its first surplus in almost a decade in 2022, and expects "limited budget deficits" in the medium term due to expansionary spending policies.

"Saudi (Arabia) has moved to a medium-term fiscal framework which is a welcome step and has worked extensively on diversifying non-oil revenue," Azour said. He added that raised spending while maintaining its medium term targets would be acceptable, since Saudi Arabia has ample fiscal buffers. The IMF cut its 2023 growth forecast for Saudi Arabia to 0.8%, recovering to 4% next year.