Riyadh, Saudi Arabia — The Gulf region, which is set to expand by 6.9 percent in 2022, may witness moderation in its economies to 3.7 percent and 2.4 percent in 2023 and 2024 respectively, according to the new World Bank Gulf Economic Update (GEU).
Easing of pandemic restrictions, and positive developments in the hydrocarbon market drove strong recoveries in 2021 and 2022 across the GCC, the report pointed out.
Strong economic recovery and supply chain bottlenecks, it said, raised inflation in the GCC to an average rate of 2.1 percent in 2021 — up from 0.8 percent in 2020.
Supported by higher hydrocarbon prices, the GCC region is expected to register strong twin surpluses in 2022 and continue over the medium term. The regional fiscal balance is projected to register a surplus of 5.3 percent of GDP in 2022 —the first surplus since 2014 — while the external balance surplus is expected to reach 17.2 percent of GDP.
This issue of the (GEU), titled “Green Growth Opportunities in the GCC,” examines the development of the green growth sectors and looks at the potential opportunities this could provide for the GCC countries. The report also discusses GCC countries’ plans to decrease the use of fossil fuels to generate electricity, their aims to increase the capacity of renewable energy to power domestic electricity needs, and their goals to enhance the role of the private sector and reduce the role of the public sector. At the same time, it looks at how the climate agenda could be used to further diversify their economies in high growth sectors, including the upstream and downstream industries for the energy transition.
If the GCC continued business as usual, their combined GDP would grow to an expected US$ 6 trillion by 2050. However, if the GCC countries implemented a green growth strategy that would help and accelerate their economic diversification, GDP could have the potential to grow to over US$ 13 trillion by 2050, says the World Bank report.
“There is an excellent and timely opportunity to diversify the economy further using a green growth strategy, and playing a leading role in the global transition to low-carbon economies,” said Issam Abousleiman, World Bank Regional Director for the GCC. “The region could use the green growth transition to focus policies on developing green technologies and associated skilled labor that would reverse trends in productivity and enable the region to grow faster.”
The GCC countries’ total GDP is projected to be close to US$ 2 trillion in 2022. If the GCC continued business as usual, their combined GDP would grow to an expected US$ 6 trillion by 2050. However, if the GCC countries implemented a green growth strategy that would help and accelerate their economic diversification, GDP could have the potential to grow to over US$ 13 trillion by 2050.
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The special focus section of the report highlights the size of the addressable market for green growth, focusing on the major upstream and downstream sectors of the green economy, including, renewable energy, green buildings, sustainable transport, water management and waste management. In addition, it covers green finance as a critical enabler for new investments.
Focusing on green growth in the Gulf region is entirely in line with GCC vision documents that outline an image of the economy of the future that relies increasingly on the private sector playing a leading role in investment, job creation and value addition.
Outlook
Saudi Arabia: Growth is expected to accelerate to 8.3 percent in 2022 before moderating to 3.7 percent and 2.3 percent in 2023 and 2024, respectively. In spite of recent signals for a more cautious approach to OPEC+ planned production, the oil sector will remain the main driver behind this growth with output estimated to grow by 15.5 percent in 2022. The budget balance should register a surplus of 6.8 percent of GDP in 2022—the first surplus in nine years—driven by higher oil revenues. Meanwhile, higher oil receipts are expected to more than compensate for the larger imports bill resulting in a significant external balance surplus of 18.8 percent of GDP in 2022.
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United Arab Emirates: Higher oil export volumes coupled with a revival in non-oil demand will support strong economic growth in 2022. This is further supported by a favorable business environment and world-class infrastructure. Real GDP is expected to grow by 5.9 percent in 2022 before moderating to 4.1 percent in 2023 as slower global demand dampens growth due to tightening financial conditions. Higher oil receipts supplemented with a gradual non-oil recovery will bolster fiscal revenue resulting in a fiscal surplus to hover around 4.4 percent of GDP in 2022. Recent bilateral free trade agreements with Asian partners supported by strong oil exports will place the current account surplus at 11.2 percent of GDP in 2022.
Qatar: Real GDP is estimated to rise to 4 percent in 2022 with exports (5.4 percent) and government consumption (4.8 percent) leading on the demand side. Growth in private consumption may be slightly below 4.5 percent, driven by higher interest rates and prices. Consumer prices are projected to increase on average 4.6 percent this year and to remain a full percentage point above levels recorded last year as far out as 2024. Both the current account and fiscal balance surpluses are projected to widen significantly in 2022 given their dependence on booming hydrocarbon prices—with the former expected to reach 20 percent of GDP and the latter 6 percent of GDP during 2022.
Kuwait: Economic growth is forecast to accelerate in 2022 to 8.5 percent before moderating to 2.5 percent in 2023 and 2024, respectively. The non-oil sector is anticipated to continue expanding in 2023 following a 7.7 percent uptick in 2022. More robust demand will be translated into additional upward inflationary pressures, though monetary tightening and decreasing global food prices will moderate inflation in the medium term. The fiscal balance is anticipated to register a surplus of 1.1 percent of GDP in 2022, with the possibility of a widening surplus (5.9 percent of GDP) if the newly elected Parliament approves government’s proposal to suspend FGF transfer during this fiscal year. Higher oil receipts are expected to more than compensate for the larger imports bill resulting in a significant external balance surplus of 28.6 percent of GDP in 2022.
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Bahrain: Bahrain’s economic outlook hangs on oil market prospects and the government’s commitment to the reform agenda. Growth is expected to accelerate to 3.8 percent in 2022; mainly driven by the non-hydrocarbon sector which is expected to exceed 4 percent growth, supported by the full reopening of the economy and a stronger manufacturing sector. Higher oil prices and resuming spending restraints under FBP are expected to significantly narrow the fiscal deficit to less than 4 percent of GDP in 2022. The current account balance, which recorded its first surplus in seven years in 2021, is forecasted to improve markedly to reach 11.3 percent of GDP in 2022 and remain in surplus over the medium term.
Oman: The economy is projected to continue its recovery and strengthen over the medium-term, driven by robust energy prices, expansion of oil and gas production, and wide-ranging structural reforms. GDP growth is forecast to reach 4.5 percent in 2022 before moderating to an average of 3.2 percent in 2023-24. The overall fiscal deficit is expected to turn into a surplus of nearly 6 percent of GDP in 2022—the first surplus in almost a decade—reducing gross financing needs. Similarly, the external balance is swinging back into surplus (6 percent of GDP in 2022)—the first surplus in 7 years—on the back of higher oil receipts and recovery in non-oil exports.