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Less dramatic year ahead for Middle East post-Covid and oil boom era

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Oman's economy will be the second-fastest growing in 2023, according to the IMF. It's predicted to grow by 4.1%, just below the UAE, which is expected to grow by 4.2%
  • Growth should go back to normal after average 6.5% for 2022
  • UAE and Oman predicted to be fastest-growing economies
  • Still-high oil prices and reforms will help to provide resilience

After the sugar rush of 2022, Gulf states will have to get used to less dramatic rates of growth in 2023, as economies stabilise following the immediate post-Covid period that coincided with the spillover effects from the Ukraine crisis. 

GCC growth averaged 6.5 percent in 2022, according to International Monetary Fund (IMF) estimates, and the coming year should see growth get back to the historic norm.

The UAE will be the fastest growing Gulf economy in 2023, the IMF said, growing at 4.2 percent, ahead of Oman (4.1 percent), Saudi Arabia (3.7 percent), Bahrain (3 percent), Kuwait (2.6 percent) and Qatar (2.4 percent). 

According to Oxford Economics, the oil sector will make only a modest contribution to GCC growth in 2023, as renewed curbs on oil output mean the energy sector will barely grow compared to the double-digit expansion in 2022.

The non-oil economy, however, is expected to fare reasonably well in 2023, according to Daniel Kaye, acting group chief economist at NBK’s Economic Research Group.

“A combination of still-high oil prices, ongoing structural reforms and government initiatives to support investment will provide some resilience to the global headwinds, as well as higher interest rates,” he said. 

“The reform agenda is most prominent in Saudi Arabia and the UAE, but smaller Gulf countries including Bahrain and Oman are also targeting measures to boost fiscal resilience, labour market competitiveness and openness to foreign direct investment.”

Here is what the GCC countries have in store for 2023.


The island kingdom will be looking at a less stellar economic performance in 2023 compared to the previous year, when it posted real GDP growth above 5.5 percent.

Underpinning Bahrain’s performance is its non-oil economy, notably tourism and hospitality, and stronger manufacturing.

But the expectation of slowly declining oil and gas prices in 2023, in the context of weaker global growth, will bring Bahrain’s real GDP down to around 3 percent. 

In a sign of broader confidence in the kingdom’s economic prospects, ratings agency S&P Global Ratings revised its outlook on Bahrain from stable to positive in November, citing the government’s fiscal reforms and high crude prices. 

It said stronger receipts from tourism and financial services, tied to the normalisation of economic activity, would help shore up the services account.

While lower oil prices and capacity limits on its 200,000 barrels per day output will limit oil growth chances in 2023, non-oil growth is shaping up to perform well, and will potentially be given uplift from the government’s $30 billion Economic Recovery Plan.

The government’s ongoing implementation of its fiscal balance programme means the economy will feel the positive impact of fiscal consolidation through expenditure cuts and revenue-enhancing initiatives.

It also aims to attract $2.5 billion in foreign direct investment in 2023. 


Kuwait’s traditional strength as an oil producer, seeing double-digit percentage increase in output in 2022, has played a pivotal role in driving growth, but that will likely not be replicated in 2023. 

While its growth reached an impressive 8.5 percent in 2022, the highest among all GCC states, according to World Bank projections, this will moderate to 2.5 percent.

Meanwhile Kuwait’s non-oil sector should continue to expand in 2023 following a 7.7 percent uptick in 2022. Buoyant consumer spending and relatively strong real estate activity should sustain the expansion of non-oil output going forward.

The strong growth in 2022 can be attributed in large part to the 12 percent increase in oil production that year, but Opec+ output cuts will remove that driver from the equation in 2023.

Kuwait’s output quota for 2023 is 2.68 million barrels per day, which economists at Kuwait-based National bank of Kuwait (NBK) expect to result in oil GDP falling by 1.1 percent. 

Inflation is unlikely to trouble Kuwaitis in 2023, given monetary tightening measures and lower food prices. The strong dinar should also help ameliorate price pressures, with NBK forecasting inflation of 2.7 percent in 2023, compared to an average 3.9 percent in 2022. 

Longer-term, Kuwait must progress structural reforms designed to make the private sector play a greater role.

Waterfront, Water, HarborUnsplash
Kuwait’s economy grew by 8.5% in 2022, the highest of all GCC states, but this should moderate to 2.5% in 2023


After successive years of budget deficits, Oman is back in surplus territory, with NBK forecasting a fiscal surplus of 3.2 percent in 2023.

The sultanate is feeling the tailwind effect of high oil and gas prices, while feeling the force of ongoing economic reforms that have materially shifted an outlook that just a couple of years ago looked notably bleak.

The improvement in the country’s debt position is notable, with public debt reduced to 55 percent of GDP, from 69 percent in 2022. That will reduce funding risks and exposure to rising interest rates. 

Ratings agencies Fitch and S&P have raised the government’s credit rating one notch to reflect these improved metrics. With both oil and gas export receipts flooding in, Oman should also record a current account surplus in 2023. 

The impact of the non-oil economic improvement will also be felt. Fitch Solutions has revised upwards its 2023 forecast for Oman’s current account surplus from 3.9 percent of GDP to 5.1 percent of GDP in 2023, due to a more bullish outlook for non-hydrocarbon exports. 

Though inflation will be higher in 2023, at a projected 3 percent, this is at a sufficiently low level to be unlikely to register excessive concern among policymakers.


After a year dominated by the World Cup, which gave Qatar a big consumption-driven hit, 2023 will inevitably prove less expansive.

London-based consultancy firm Capital Economics predicts that after the one-off impact of the World Cup, and with gas output constrained – the North Field expansion won’t come online until 2025 – overall growth will slow in 2023-24. NBK forecasts Qatari GDP slipping to 2.4 percent in 2023, from 4.1 percent in 2022, as the World Cup impetus fades

Even if Qatar is unable to sustain the increased tourism and related spending from an estimated 1 million visitors in November and December 2022, the country’s fundamentals remain formidable and the outlook for the coming year looks to be positive.

For example, it is on course for another substantial fiscal surplus in 2023 that will also help it drive down public debt, some of which was caused by the spending associated with hosting the World Cup.

However, one risk Qatar faces that others in the region don’t face is the prospect of overcapacity in tourism and real estate. Capital Economics said this poses a threat to local banks given that much of the past decade’s credit boom was directed towards those two sectors.

Even though there won’t be as much tourism and spending in Qatar after the World Cup, its outlook for the coming year still looks positive

Saudi Arabia 

The Middle East’s largest economy will be in retrenchment mode in 2023, after an explosive 2022 that saw it record its strongest growth in a decade – the General Authority for Statistics released Q3 GDP data showing real growth of 8.8 percent.

As the region’s largest oil exporter, the kingdom will be hit harder by production cuts that it was the main architect of.

“The most recent Opec+ agreement, with the cuts to production quotas, would result in a drag on economic growth. And that will be felt most keenly in Saudi Arabia,” said James Swanston, Mena economist at Capital Economics.

The good news is that inflationary pressures have been contained, with Capital Economics seeing inflation likely to fall back to just 2 percent over the course of 2023. If a long-anticipated cut to the VAT rate comes through in the coming year, then this will further reduce inflationary pressures. 

United Arab Emirates

With the UAE in active reform mode in recent years, some of the fruits of the dismantling of barriers to doing business – such as implementing business-friendly visa rules – will start to make themselves felt in 2023.

Like other GCC oil exporters, growth will be slower compared to 2022. However, the UAE’s plans to boost oil production should start to have an impact in the coming years.

There is evidence that the country’s revenue boost is yielding a more expansionary fiscal stance, with the Dubai government approving a 2023 budget of AED67.5 billion ($18.4 billion), a 13 percent increase on the 2022 budget.

With revenue expected to rise by 20 percent in 2023, the emirates’ government has forecast a surplus of AED1.5 billion – the first planned surplus since 2019. Dubai’s confidence reflects its recovering tourism, hospitality and property sectors.

There are caveats to the UAE outlook in 2023. Capital Economics’ Swanston said that while fiscal support would help cushion the slowdown in the non-oil economy, as monetary conditions tighten and the reopening boost fades, “we remain concerned that tourism and expat demand will not be sufficient to meet the supply of real estate coming online, which may exacerbate overcapacity and make it difficult for government-related entities to service their debts”.

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