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Weak Oil Demand To Slow Economic Growth In The Middle East Next Year

The major oil exporters in the Arab Gulf will see their economies grow at a lower rate next year compared to this year’s growth and previous expectations due to weaker-than-projected global oil demand growth, a Reuters poll of economists showed on Thursday.

The six members of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—are forecast to record overall economic growth of 6.6% this year. But next year, growth will slow, although it will remain strong by international standards. Growth is now expected at 4.2% in 2023, according to the economists polled by Reuters. 

The stronger U.S. dollar, to which the GCC currencies are pegged, is also expected to weigh down on the 2023 economic growth.

“GCC countries have benefitted from sharply higher oil prices, turning budget deficits into surpluses, and increased oil production which has bumped up GDP growth. However, the outlook for 2023 is more challenging, given the strength of the U.S. dollar,” Khatija Haque, head of research and chief economist at Emirates NBD, told Reuters.

Saudi Arabia’s GDP is expected to grow by 3.5% next year, significantly down from last year’s projection of 8.1% growth, according to the Reuters poll.

This year, GCC economies are on track for the fastest economic growth in years and for budget surpluses, for some of them the first surpluses in a decade. But growth is expected to slow down next year due to the weaker oil demand, the OPEC+ production cuts as of November, spiking food prices, and fears of a recession in major oil-importing countries.

According to the International Monetary Fund (IMF), economic growth is projected at 5.2% this year for the oil exporters in the Middle East and Central Asia, with high oil prices and robust non-oil GDP growth offsetting the global headwinds.

“However, economic activity in these countries is expected or so to slow next year as OPEC-plus production cuts, and oil price decline, and global demand is expected to slow,” Jihad Azour, Director of the Middle East and Central Asia Department at the IMF, said last week.

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By Tsvetana Paraskova for Oilprice.com

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