UAE, Saudi to lead GCC non-oil GDP growth

The UAE and Saudi Arabia will lead the growth of the non-oil sector in the short-term as the GCC region in general remains strong, driven by higher domestic demand, increased gross capital inflows, and reform implementation, the International Monetary Fund said in its latest report.

The UAE posted a robust non-oil growth of 5.9 per cent in the first-half of 2023, driven by strong domestic demand, while Saudi Arabia’s H1 2023 non-hydrocarbon GDP (non-oil private and government activities) growth averaged around 4.5 per cent, the IMF said in its report titled “Economic Prospects and Policy Priorities for the GCC Countries.”

The combined non-hydrocarbon GDP growth of the region is estimated at a buoyant 4.3 per cent in 2023 after a robust 5.3 per cent surge in 2022. However, oil production cuts will lower the GCC GDP growth to 1.5 per cent in 2023. The slowdown in overall growth from the exceptional 7.9 per cent registered in 2022 mainly reflects oil production cuts slowing hydrocarbon GDP.

“While the GCC hydrocarbon GDP grew by 7.8 per cent in 2022 supported by global cyclical momentum, it is expected to register a negative growth of around 1.0 per cent in 2023 because of oil production cuts in line with the Opec+ agreement and further unilateral cuts of 1.0 million bpd by Saudi Arabia that were extended to end-December 2023.”

The Washington-based Fund noted that the increase in GCC’s non-oil revenues reflects the ongoing financial and structural reforms undertaken by the GCC countries.

“Inflation in the region is contained and current account surpluses are high. Inflation is expected to stay contained at 2.6 per cent in 2023 and 2.3 per cent in 2024, and converge with that of the US in the medium-term with pegs to the US dollar in place,” the IMF said.

“Fiscal balances remain healthy, supported by fiscal reforms and high oil prices. The primary non-oil deficits are expected to decrease to 24 per cent of the combined GDP of the GCC by 2028, with higher non-oil revenue reflecting sustained fiscal and structural reforms and contained expenditures. However, high global uncertainty is weighing on the outlook,” the IMF added.

It predicted that oil production – which depends on Opec+ decisions – will be subdued in the near term.