Middle East economy to stay resilient amid global slowdown in 2024

Forecast for next year suggests the region may outpace worldwide growth, but oil output cuts will influence the extent of economic expansion in the near future. 

After a strong 2022, the global economy eased in 2023 and is showing signs of slowing down further in 2024.

Global GDP growth was robust at 3.5% last year, and is expected to dip to 3% this year, before slipping to 2.9% the following year. 

This trajectory falls notably below the historical average of 3.8% observed between 2000 and 2019, according to the International Monetary Fund (IMF). Advanced economies are poised for a slowdown, transitioning from 2.6% growth in 2022, to 1.5% in 2023, and 1.4% in 2024, a consequence of tightening policy measures taking effect. Meanwhile, emerging market and developing economies are expected to experience a modest reduction in growth, sliding from 4.1% in 2022, to 4% in both 2023 and 2024.

“Emerging market and developing economies are projected to have growth modestly decline, from 4.1% in 2022 to 4% in both 2023 and 2024, with a downward revision of 0.1% point in 2024, reflecting the property sector crisis in China,” the IMF said in its latest report.

The IMF said that risks to the outlook are more balanced than they were six months ago, on account of the resolution of US debt ceiling tensions, and Swiss and US authorities’ having acted decisively to contain financial turbulence.

NO MORE HARD LANDING, BUT…

“The likelihood of a hard landing has receded, but the balance of risks to global growth remains tilted to the downside. China’s property sector crisis could deepen, with global spillovers, particularly for commodity exporters,” the IMF noted in its World Economic Outlook.

Projections for global inflation indicate a gradual decline, with an estimated drop from 8.7% in 2022, to 6.9% in 2023, and further to 5.8% in 2024. This reduction is attributed to tighter monetary policies, facilitated by a decrease in international commodity prices. Core inflation, however, is anticipated to decrease at a more measured pace, with a return to target levels not anticipated until 2025 in most instances.

The IMF suggests that going forward, there is less room for error in policymaking, and emphasis is on central banks to restore price stability while employing policy tools to alleviate potential financial stress as required. Effective monetary policy frameworks and clear communication are essential to anchor expectations and minimise the output costs associated with disinflation. 

“Fiscal policymakers should rebuild budgetary room for manoeuvre and withdraw untargeted measures while protecting the vulnerable. Reforms to reduce structural impediments to growth – by, among other things, encouraging labour market participation – would smooth the decline of inflation to target and facilitate debt reduction,” the IMF said.

The fund is also urging fiscal policymakers to create fiscal flexibility, retract untargeted measures, and safeguard vulnerable populations. Structural reforms, such as those aimed at promoting labour market participation, can contribute to a smoother decline in inflation towards the target and facilitate debt reduction.

Climate finance and investment in clean technologies also determine investment growth across the world.

“Co-operation is needed as well to mitigate the effects of climate change and speed the green transition, including by ensuring steady cross-border flows of the necessary minerals,” the fund said.

MIDDLE EAST GROWTH

The region’s GDP is set to grow to 3.5% in 2024 after a slower 1.9% in 2023, significantly lower compared to the 6% recorded in 2022 on the back of rising commodity production and higher prices, according to World Bank estimates.

Anticipated growth in the Middle East and North Africa (MENA) region is expected to decelerate in 2023, influenced by both base and spillover effects from the global economic slowdown. Over the past 12 months, the 2023 forecast has undergone further downward revisions, primarily in response to the oil production cuts declared by OPEC+ in October 2022 and April 2023. Additional cuts announced by Saudi Arabia in June 2023 further contributed to this adjustment.

Particularly noteworthy is the substantial decline in the average 2023 forecast for GCC economies among private sector analysts following the April 2023 announcement, subsequently impacting the overall MENA forecast. 

While private sector forecasts for developing oil exporters experienced changes post-April 2023, the revision was less pronounced compared to the shifts observed in GCC forecasts. Estimates for developing oil importers, on the other hand, continued their downward trajectory for the second consecutive year.

After two years of more than 3% growth, Oman is expected to post good growth of 1.4% in 2023 – outpacing overall GDP growth of 1%. The Sultanate’s economy is set to rise by 2.7% in 2024, as part of an overall surge in the economic expansion of oil exporters, the World Bank added.

Overall, GCC economic growth is set to rise 3.6% in 2023, led by Saudi Arabia’s 4.1% expansion, and the UAE’s 3.7% growth.