World Bank sees Saudi economy contracting in 2023; Middle East, North Africa growth sharply lower

THE World Bank expects Saudi Arabia’s economy to contract by 0.9 per cent in 2023, it said in a report on Thursday (Oct 5), revising its growth forecast for the world’s top oil exporter sharply lower on the back of production cuts and lower prices.

Overall growth in the Middle East and North Africa (Mena) region is also expected to slow, now forecast at 1.9 per cent in 2023, down from 6 per cent last year and lower than the 3 per cent the World Bank forecast in April.

Saudi Arabia, the Arab world’s largest economy, has cut its oil production in a pre-emptive move it says is intended to stabilise the oil market. Oil prices remain below last year’s average of US$100 a barrel.

The Saudi government expects GDP growth to slow to 0.03 per cent in 2023, from 8.7 per cent last year, according to revised forecasts released by the finance ministry last week, narrowly avoiding a contraction.

The World Bank’s latest economic update attributed the “abrupt decrease” in Saudi economic activity to “lower oil production levels amidst subdued prices”. It had forecast Saudi GDP growth at 2.9 per cent in 2023 in its April update.

Growth for the six-member Gulf Cooperation Council (GCC) of oil and gas exporters is expected to decelerate to 1 per cent in 2023, down from 7.3 per cent last year, and sharply below the 3.2 per cent forecast in the World Bank’s April update. It is expected to rebound to 3.6 per cent in 2024.

Mena economies vary widely between the wealthy GCC, developing oil importers such as Jordan, and developing oil exporters such as Iraq.

But prolonged oil production cuts this year have balanced out the playing field somewhat. Growth among the region’s oil importers is projected at 3.6 per cent this year, down from 4.9 per cent in 2022.

“This divergence is projected to close in 2023 and 2024, bringing the tale of two Menas to a halt,” according to the World Bank Mena Economic Update.

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The World Bank sees Mena GDP per capita growth, a proxy for living standards, slowing to 0.4 per cent in 2023 from 4.3 per cent last year, raising concerns about prospects for future employment among the region’s young population.

“Without proper policy reforms, we could inadvertently worsen the enduring structural challenges faced by Mena’s labour markets as far as the eye can see. The time for reform is now,” Ferid Belhaj, the World Bank’s vice president for the region, said.

The GCC is now expected to post a fiscal surplus of 0.8 per cent of GDP in 2023, down from 4.3 per cent in 2022, and lower than the 3.2 per cent projected in April. REUTERS