DAVOS, SWITZERLAND — The global economy faces another period of uncertainty in 2023, with many countries expected to face recessions and continued inflation putting pressure on both government and household budgets.
Some Middle Eastern countries are experiencing the full force of these headwinds. Nonetheless, the GCC appears to be an island of calm in this storm, as it appears to be bucking the trends of the predicted global recession, which is expected to hit at least a third of the world’s economies in 2023, according to the IMF.
In an exclusive interview with TRENDS, Maroun Kairouz, Director for the Middle East and North Africa (MENA) at the World Economic Forum (WEF) stressed that the GCC countries would be the least affected by the recession.
He said that global recessions impact growth rates, international trade, tourism, and even internal politics. “Given their reserves and long-term outlook, GCC countries will be able to weather it based on experience. Beyond that, I believe their role would be even more critical. For example, if we recall the global crisis of 2007 and 2008, all western leaders knocked on the doors of GCC sovereign wealth funds because those are the pools of long-term capital that can provide the needed liquidity. So, the GCC countries have sufficient reserves, and I believe they will face the recession in the long run. While it will most likely impact growth rates, it will be less severe than in some other countries,” he added.
In 2023, however, some Middle Eastern economies appear to be more resilient than most developed markets. In fact, the region has returned to the forefront and center of global policymakers’ and great powers’ attention in 2022.
According to Kairouz, this is due to three major factors:
The first of these is the energy crisis. 2022 was the first year in the last two decades where the number of people without access to electricity increased. So yes, the energy transition is critical, but it must be done in an inclusive way that engages the Middle East rather than the other way around.
The second is the geopolitics issue. The war in Ukraine has demonstrated that even if you want to compete with other regions of the world, you must recognize the role of the Middle East. Many Gulf countries, for example, have attempted to resolve the Ukraine conflict. We have also seen the Chinese and American presidents visiting Saudi Arabia and strategic alliances being announced.
The third and most important reason is climate change. Cop27 in Egypt and the upcoming Cop28 in the UAE have positioned the region, particularly the GCC, as one of the fastest-growing regions, partly due to energy markets and climate change. Moreover, many countries in the region are reaping the fruits of years of reforms and ambitious transformation programs. This was clear with the agility and fast-paced policymaking, especially when facing the COVID pandemic.
“So, in the short term, I believe, and most experts believe, that these trends will continue into 2023. Of course, the picture varies by region. However, resilience is a keyword for the region, and it is hoped that it will be able to navigate the risks that may arise during 2023”, he added.
Growth challenges
Kairouz, on the other hand, highlighted three challenges the region will face in terms of economic growth in 2023.
He believes that global geopolitical polarization is the most significant issue, although some may argue that the region can benefit from it through near-shoring opportunities for all parties. When the global economy fragments into competing spheres that do not interface with each other, this will be a net loss for the region, particularly if they are compelled to choose between China and the United States or Europe and Russia. Most countries in the region are strategic partners with all these countries; therefore, maintaining their position is essential to sustaining their economic vitality.
The second challenge is the rising price of oil, especially if the momentum for reform is diminished and large spending plans are reinstated. We’ve seen some of this unfolding in Kuwait, for instance. In other countries, they have managed to maintain their position so far. Even though they have large budget surpluses, and the fiscal outlook has improved, this must remain the case.
The third challenge, according to him, is more difficult or complex. It is related to managing the balance between the speed and agility of economic policymaking, which many countries possess, and providing the private sector with enough visibility and predictability to make long-term investment plans which is crucial, as the private sector thrives on uncertainty and is discouraged by it.
In addition to those three challenges, Kairouz mentioned a long-term challenge that is more significant but less urgent right now: climate change. The MENA region has issued a warning to double global efforts. As a result, we are now looking at temperature increases of 4 to 5 degrees by 2050.
“If we don’t do something about it right now, the region’s GDP could be reduced by 14% by 2050 due to water issues and scarcity. So, since the UAE is hosting the next COP, it is a perfect opportunity for the region to shoulder its responsibilities on that front in an inclusive manner and to play its part in the fight against climate change because their citizens will be disproportionately affected”, he stated.
Competition
There is no doubt that Saudi Arabia is the region’s waking giant right now, as its Vision 2030 program has begun to bear fruit in the last two years, and this has not hidden the fact that it has increased competition in the region.
When asked about Saudi Arabia taking the lead in economic growth, which the UAE had previously led, Kairouz stated that Saudi economic ministers say that competition is welcome and healthy.
He stated that Saudi Crown Prince and Prime Minister Mohamad Bin Salman has said that Vision 2030 is about uplifting the GCC and the Middle East and that he wants the Middle East to be the next Europe. So here’s hoping.
“To be fair, the reforms will keep a growing portion of Saudi citizens’ spending in the country. However, as that pie grows, I don’t believe it will have the same impact on Saudi Arabia’s neighbors. And it is clear that Saudi growth is coming at the expense of other countries in general,” he added.
Kairouz went on to say that some sectors may be negatively impacted, but others will benefit from the boom that needs to be managed. “Collaboration within the GCC and dialogue are essential to accomplish this. Still, overall I think it’s a good thing for the GCC and the region because, let’s face it, Saudi Arabia is the powerhouse that can propel the entire Arab world forward,” he said.