The surprise OPEC+ production cuts will drag down economic growth in the biggest Arab Gulf economies this year, including in the world's top crude oil exporter Saudi Arabia, bank Emirates NBD said in a new estimate this week.
The biggest OPEC producers in the Middle East and several other members of the OPEC+ pact announced on Sunday a total of 1.16 million bpd of fresh production cuts. Saudi Arabia will cut 500,000 bpd and said that the move was "a precautionary measure aimed at supporting the stability of the oil market." The reduction is on top of Russia's current 500,000 bpd cut which was extended until the end of the year.
As a result of the cuts, Emirates NBD revised down its 2023 gross domestic product (GDP) growth forecasts for several GCC countries, following the announcement of voluntary oil production cuts by Saudi Arabia, the UAE, Kuwait, and Oman from May through the end of 2023.
Economies in the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE - are set to see headline GDP growth at 2.3% this year, down from 3.2% previously projected, the bank said.
If Saudi Arabia maintains the 500,000 bpd cuts through the end of 2023, average crude production will drop by more than 4% from 2022 levels, and GDP growth could be 2.1% this year, down from the 3.1% expected earlier.
"While investment in boosting capacity in the oil & gas sector will continue, we now expect overall hydrocarbon GDP to decline by -2.0% in 2023 against a previous forecast of 2.0% growth," Khatija Haque, Head of Research & Chief Economist at Emirates NBD, wrote.
"With the non-oil sector growth estimate unchanged at 4.8%, headline GDP for the kingdom will likely reach 2.1% this year, a full percentage point lower than we had previously expected."
The outlook for the UAE's GDP growth was revised down to 3.4% from 3.9% previously, while Kuwait is expected to see economic growth of just 0.2%, slashed from 2.4% previously, and Oman at 1.7%, down from 2.8%.
By Tsvetana Paraskova for Oilprice.com
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