Fostering Economic Resilience in the Face of Global Headwinds

Growth has largely remained robust across the GCC region with real GDP growth expected to moderate from 6.1% in 2022 to 3.4% in 2023

GCC countries have so far withstood global inflationary pressures as the US Federal Reserve and central banks worldwide have signalled that the fight to wrestle inflation back to manageable levels is far from over.

Central banks have been preoccupied with fighting inflation perhaps more than the growth of the real economy mostly after the disruptions to trade and production as a result of the war in Ukraine triggered a surge in global commodity prices including oil, gas, wheat and industrial metals.

Credit Suisse said that inflation in most GCC countries has already stabilised with signs of disinflation already appearing—largely against the investment bank’s expectations for inflation to peak in Q1 2023.

While soaring commodity prices have put importers under pressure and raised the threat of longer-lasting inflation, the rally in oil prices has pushed the budgets of GCC countries into the black for the first time in years.

Global benchmark Brent mostly traded above the $90 mark in 2022 and is expected to remain above $60 this year despite a looming recession. The current oil boom has limited the fallout from the conflict in Europe and the impact of tighter monetary policy—allowing for a more positive outlook for GCC economies.

The International Monetary Fund projected that GCC countries will have an overall fiscal surplus of over $100 billion in 2022 alone as reforms have allowed governments to save far more resources than in previous growth periods. Growth has largely remained robust across the region with real GDP growth expected to moderate from 6.1% in 2022 to 3.4% in 2023.

Similarly, the UAE enjoyed a strong finish to 2022 and its non-oil sectors are holding up against the headwinds of higher inflation and interest rates. Growth in the non-oil private sector in the UAE eased further in December bringing the PMI index to 54.2, a slight decrease from the previous month. However, the headline index has remained above the 50-mark that separates growth from contraction for over two years.

The country’s property market continues to perform strongly while growth in the tourism industry received an additional boost from the FIFA World Cup in Qatar.

Beyond a rebound in non-oil domestic activity, the UAE has bucked a global slump in stock market listings with deals on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Markets (DFM) attracting solid investor demand in 2022. More companies are scheduled to list on the ADX and DFM this year.

The IPO frenzy is expected to drive a relatively strong performance in UAE equity markets despite equity prices being caught up in global market uncertainty. It will continue a trend that has made the Middle East a bright spot in an otherwise gloomy market for new share sales.

The performance and resilience of the equity markets can be attributed to government policy support that is stimulating investments while increasing the competitiveness of the UAE’s economy.

GCC countries are entering 2023 on solid footing compared to their peers in the emerging markets as fiscal balances have been substantially upgraded across the board. Though risks to growth remain on the downside and the GCC looks set to weather the expected global recession, the region is not immune to fragile economic conditions.