GCC growth set to outperform many developed markets in 2023

2022 was a stellar year for the GCC economies, which have grown at the fastest pace in almost a decade, underpinned by a double-digit increase in oil production and strong non-oil sector activity as well. We estimate GCC real GDP growth at 7.4% in 2022 on a nominal-GDP weighted basis, more than double the growth rate achieved in 2021. Saudi Arabia and the UAE were the fastest growing economies in the region, as they were each able to ramp up oil production by 15% last year, according to Bloomberg estimates.

GCC real GDP growth*

Source: Haver Analytics, Emirates NBD Research

* Average weighted by nominal GDP

Non-oil sector growth in the region was also robust as domestic demand continued to rebound from the pandemic-related contractions in 2020. We estimate the UAE’s non-oil economy grew by 5.6% in 2022 as tourism and travel recovered strongly, supporting growth across a range of other services sectors. Several indicators point to an increase in the population of the UAE, which would also have contributed to stronger domestic demand.

Foreign investment has likely been a key contributor to the UAE’s economic growth in 2022, with Dubai reporting a 14.6% y/y increase in FDI in H1 2022; recent structural reforms and a low tax regime have made the UAE a more attractive destination for investors. A new range of longer-term residency visas have made it easier for skilled workers to move to the UAE without being sponsored and changes in laws around foreign ownership and other business regulations have made it easier for foreign nationals to start businesses.

The outlook for 2023 is more cautious given the weaker external environment, although the GCC will likely continue to outperform many developed economies in terms of GDP growth. While oil and gas output growth is expected to slow this year, continued investment to boost production capacity in the region should see the sector contribute positively to headline GDP again in 2023.

We expect non-oil sector growth to slow to varying degrees across the GCC in 2023.  In a very open economy like the UAE, we expect non-oil growth to slow to 3.5% this year from an estimated 5.6% in 2022 as slower global growth weighs on international trade and higher interest rates dampen consumption and private sector investment.

GCC non-oil GDP growth*

Source: Haver Analytics,Emirates NBD Research

*Average weighted by nominal GDP

In Saudi Arabia we expect government investment and spending to underpin non-oil sector activity, as the authorities look to make up time lost during the pandemic with respect to progress on giga projects and broader infrastructure delivery to achieve the Vision 2030 goals. After increasing capital spending in the budget by almost 30% y/y in 2022, the 2023 budget makes provision for a further 4% increase.  This is in addition to the investment undertaken by government related entities such as the Public Investment Fund. 

Our view on robust government investment spending in the region is predicated on our expectation that oil prices will remain elevated this year, with Brent forecast to average over USD 100/b in 2023. While oil has started 2023 on the backfoot over global recession fears, supply remains constrained in the context of years of underinvestment in infrastructure and capacity. International sanctions on Russian energy exports may also contribute to tighter oil supply. On the demand side, China’s abrupt relaxation of the most stringent Covid-zero restrictions could see activity there normalize earlier than previously anticipated, and demand for oil may well surprise on the upside in H2 2023.