The Gulf region is expected to outperform many developed economies in 2023 despite a slowdown in growth amidst a slower expansion of the energy sector and a weaker external environment.

The regional economies had a stellar performance last year, growing at the fastest pace in almost 10 years on the back of an increase in oil production and growth of the non-oil sector.

“We estimate GCC real GDP growth at 7.4 per cent in 2022 on a nominal-GDP weighted basis, more than double the growth rate achieved in 2021,” said Khatija Haque, head of research and chief economist at Emirates NBD Research.

It said Saudi Arabia and the UAE were the fastest growing economies in the region, as they were each able to ramp up oil production by 15 per cent last year, according to Bloomberg estimates.

Haque estimated that GCC non-oil sector economy grew by 5.6 per cent in 2022 as tourism and travel recovered strongly, supporting growth across a range of other services sectors. “Several indicators point to an increase in the population of the UAE, which would also have contributed to stronger domestic demand.”

The forecast by the Emirates NBD is in line with the International Monetary Fund’s (IMF) latest regional forecast which projected 3.6 per cent growth in 2023 as against 6.5 per cent last year with the non-oil sector slowing by 0.3 per cent to 3.7 per cent this year.

IMF said governments in GCC countries are expected, on average, to save about 33 per cent of oil revenues.

Emirates NBD Research has projected 3.3 per cent growth for the region this year.

“The outlook for 2023 is more cautious given the weaker external environment, although the GCC will likely continue to outperform many developed economies in terms of GDP growth. While oil and gas output growth is expected to slow this year, continued investment to boost production capacity in the region should see the sector contribute positively to headline GDP again in 2023,” Haque said.

Emirates NBD Research expects non-oil sector growth to slow down in the region. In the UAE, it foresees growth slowing to 3.5 per cent this year from an estimated 5.6 per cent in 2022 due to the impact of the slower global trade and higher interest rates impacting the consumption and private sector sentiment.

It projects oil prices to remain “elevated” this year with Brent averaging $100 a barrel.

“While oil has started 2023 on the backfoot over global recession fears, supply remains constrained in the context of years of underinvestment in infrastructure and capacity. International sanctions on Russian energy exports may also contribute to a tighter oil supply. On the demand side, China’s abrupt relaxation of the most stringent Covid-zero restrictions could see activity there normalise earlier than previously anticipated, and oil demand may well surprise on the upside in H2 2023,” it said.

Jason Tuvey, a senior emerging market analyst at Capital Economics, also expects growth in non-oil sectors to soften over this year as reopening effects fade and tighter monetary policy as well as a global recession take their toll. “But oil prices should hold up well and we think this will provide scope for governments to keep fiscal policy loose, cushioning the slowdown,” he said.