For a long time now, many countries and multilateral organizations simply dismissed the prospect of a worldwide recession. But US President Joe Biden's recent remarks to CNN dismissed any such doubts.
He stated unequivocally: "I do not think that there will be an economic recession, and if it does happen, it will be a very mild one.” As for the Wall Street Journal, it said the US is expected to go through a recession in the next 12 months, with Bloomberg adding that this will happen 100 per cent. Last Friday, the European Central Bank warned of a recession in the eurozone in 2023.
The International Monetary Fund stated last week that a third of the global economy is projected to shrink by next year and that global GDP growth will slow down 2.7 per cent in 2023.
Everything is getting more obvious after what was before only a doubt. This necessitates all countries and institutions to prepare for a full-scale global recession. Interest rates would by then have increased to 5.6 per cent, a significant increase compared to last year, when it was under 1 per cent. This could set off a stagflation.
Safeguards for Gulf economies
We do not want to discuss the expected effects of the recession on various countries, as this does not need an analysis but a comprehensive study. We will briefly discuss some implications on the economies of the GCC. Nevertheless, a thorough assessment that considers all possibilities and expectations is required.
Preparing for such a change in the global economy will certainly result in significant impacts, some of which are still avoidable. The primary source of revenue of the nations that produce oil, particularly the GCC states, will undoubtedly be impacted by the impending recession. The latest decision by OPEC+ to reduce oil output by 2 million barrels per day shows that the recession will cause a fall in demand, which will result in a decrease in prices once more. To prevent further drops in oil prices and to maintain fair - but not necessarily excessive - prices, the group must take up this matter at the next monthly meeting, monitor supply and demand levels, and then choose the necessary steps.
Let’s assume OPEC+ manages to creates some balance between supply and demand, then a large part of the repercussions of the expected stagnation can be avoided. This means that the cohesion between members will be crucial to maintaining balance in the global oil market, and guaranteeing a fair price.
Not much leeway on rates
There is another aspect that is no less important. It has something to do with interest rates. Since inflation in the GCC countries are lower than those in the West, the economic situation here does not technically require raising interest rates to high levels. However, this option is unavailable, as Gulf central banks must stay in sync with the US Federal Reserve.
This is an issue that seems to be difficult to solve at the present time, which could affect growth rates in the GCC. Since the expected recession is expected to impact the world's biggest economies - the US, China and EU - it would slow down manufacturing, affect supply chains and trade, which could then result in a shortage on some commodities, including necessities like food products.
This will likely result in a rise in their pricing in global markets, particularly if the Russian-Ukrainian conflict worsens and which has already had a considerable impact on supply chains. These are just a few of the predictable effects on Gulf economies - some of these can be prevented by taking necessary precautions and carefully examining the anticipated impact on each sector, and in particular the critical ones.