DUBAI: The World Bank expects Saudi Arabia’s economy to contract by 0.9% in 2023, it said in a report on Thursday, 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% in 2023, down from 6% last year and lower than the 3% the World Bank forecast in April.
Saudi Arabia, the Arab world’s largest economy, has cut its oil production in a preemptive move it says is intended to stabilise the oil market. Oil prices remain below last year’s average of $100 a barrel.
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The Saudi government expects GDP growth to slow to 0.03% in 2023, from 8.7% last year, according to revised forecasts released by the finance ministry last week, narrowly avoiding a contraction.
The World Bank’s latest economic update, released on Thursday, 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% 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% in 2023, down from 7.3% last year, and sharply below the 3.2% forecast in the World Bank’s April update. It is expected to rebound to 3.6% 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% this year, down from 4.9% 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.
The World Bank sees MENA GDP per capita growth, a proxy for living standards, slowing to 0.4% in 2023 from 4.3% 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 labor 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% of GDP in 2023, down from 4.3% in 2022, and lower than the 3.2% projected in April.
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