Economic stagnation has been a concern in many countries, especially the Gulf states, in light of the growing inflation, rise in interest rates and disruption in supply chains.
Concerns have emerged in various comments, including the Emir of Qatar’s warning of a global economic slowdown in 2022, the United States’ claim that an economic recession is not excluded and the World Bank’s declaration that some countries will find it challenging to avoid recession.
Global concerns
According to IMF Managing Director Kristalina Georgieva, the global economic outlook has deteriorated dramatically since April. And given the significant risks involved, she cannot rule out the prospect of a worldwide recession in 2023.
She said that IMF will reduce its forecast for 3.6 percent global growth for the third time this year in the coming weeks, adding that their experts are still drafting the final updated figures.
Georgieva cited higher global inflation, larger interest rate increases, slower Chinese economic development and growing sanctions connected to the Ukraine war.
The IMF is expected to release updated predictions for 2022 and 2023 in late July, following a decrease in its forecast in early June, warning of the risks of “stagflation, particularly in low-income countries.”
Increasing interest rates
The claims of economic stagnation are made in light of the fact that most developed countries tend to tighten monetary policy and raise interest rates to combat inflationary waves.
This scenario would cause economic stagnation in the next months, affecting most of the world’s nations, especially emerging nations like Turkey, Malaysia and Egypt, due to the flow of capital away from these markets and into major countries’ banks.
The harm caused by these policies will have two aspects in the Gulf states. The first is that the Gulf countries are compelled to adjust their monetary policies in response to changes in the US Federal Reserve.
Suppose the US Federal Reserve continues to raise interest rates. In that case, the Gulf banks will continue to raise interest rates, resulting in a decrease in growth rates, halting the country’s investment process and thus negatively impacting the country’s economies.
The other aspect is that the continuous rise of interest rates will reduce the volume of foreign investment going into the Gulf countries, which will be detrimental to them.
Recession may happen
The global economic stagnation is expected to impact the GCC countries due to the decline in industrial and economic activity.
The stagnation of the largest oil-consuming nations will force them to reduce their energy consumption, impacting the oil-exporting countries, including the GCC countries.
The Arab countries, especially the rising ones, will be more affected than the Gulf countries, whose oil export surpluses can cover the shortfall.
The nearly twofold increase in energy prices is undoubtedly one of the world economy’s most significant issues. This impacts economic growth and as a result, hikes in food prices, transportation, raw materials and other commodities.
Although the Gulf countries are benefiting immensely from the high prices of oil derivatives, they are also suffering from other crises, such as disruption in supply chains and rising inflation.
The International Monetary Fund’s forecast for the current year is more optimistic for the Gulf region, with the economies of three Gulf countries anticipated to grow at or above four percent.
Saudi Arabia has the highest predicted growth rate of 4.8 percent, followed by Kuwait at 4.3 percent and Qatar at four percent.