Oil prices on a relative high and with projected budget surpluses, the Gulf states have the capacity to weather the global economic storm in 2023. Image Credit: Shutterstock

The world is bidding farewell to one of the worst economic crises during the current century. A few years after it started recovering from the Global Financial Crisis of 2008, the world was swept up by the COVID-19 pandemic, which disrupted economic activity and led to a total disruption of multiple sectors, notably airlines, tourism, hospitality and F&B.

As the world started sighs of some relief on a gradual return from virus attack, another catastrophe occurred. This was in the shape of the Ukraine situation, and which led the world to slide into another phase of economic deterioration caused by volatile supply chains, including that for food commodities.

The war also led to a deterioration in the industrial sector due to a lack of energy resource availability, and a significant rise in inflation rates, further harming living standards in many countries.

A solution on Ukraine

Against this gloomy backdrop, the world will welcome a new year filled with concerns and fears on the one hand, and with hopes for improved conditions from an end to the Ukraine war on the other hand.

The hope is for the global economy and supply chains to recover, and consequently to break the severity of peak inflation rates, and for the return of normalcy in economic and trade relations between countries.

These two probabilities are important to all people and countries after the suffering of the past three years. From available data, prospects for most regions and main economies do not indicate any improvement in 2023.

This is because the energy crisis will continue and even get more complicated with the new ceiling on oil and gas prices, which will lead to energy supply shortages, especially for the industrial and utility sectors. This means disruption of some production facilities and leading to shortages in goods, further compounding the high inflation, especially in Europe and North America.

Although energy consumption was reduced at the beginning of this winter by reducing household consumption, it has caused general discontent in these countries. This means a continuation of the crisis and its serious repercussions, as inflation is expected to remain high and any drops being marginal. This will lead to raising interest rates again, with the subsequent negative effects related to economic growth and the revitalisation of the global economic cycle.

Cut down growth chances

The IMF has lowered its global economic growth forecast for 2023 from 2.9 to 2.7 per cent. IMF also predicted that the global economy would witness a recession that will be felt by hundreds of millions across countries, leading to the weakest expected growth rate since 2001.

The economic impact and inflation will vary from one region to another. The developed and least developed countries, which import energy, will suffer the most. They will be doubly affected - from high energy prices and from the high prices of goods and services caused by inflation.

This will lead to economic contraction, except in the US, which should achieve a modicum of growth. The GCC states, India, China and Egypt will see their economies emerge stronger.

GCC's relative advantage

The GCC countries and India will achieve growth rates of 6.5 per cent, while Egypt is in line to achieve growth of 4.8 per cent and China by 2.3 per cent, according to the IMF.

As for the GCC, inflation will remain within acceptable rates. They will also achieve a surplus in their annual budgets, including Oman, which announced a deficit that may turn into a surplus in light of oil prices remaining at elevated levels. The other five GCC countries have projected surpluses.

The world’s economic suffering will continue in 2023, but with variations between how each country will feel it. Some countries will need to take austerity measures, while others will be able to breathe more freely.