Untold story of GCC growth in IMF’s regional economic growth projections

Author: Gokhan Celik, FRM , Senior Manager, Research and Policy Advocacy, Investment Promotion Agency Qatar (Invest Qatar)

As we enter the final quarter of 2023, global economy activity remains slow and falls short of its pre-pandemic trajectory. The latest World Economic Outlook (WEO) by the International Monetary Fund (IMF) shows that global growth is forecast to decline from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024. The IMF has been carefully balancing its projections, avoiding any potential to jeopardise the functioning of the already tense markets. It maintained the rhetoric of slow-paced recovery from Covid-19 pandemic while cautioning about the potential costs associated with disinflation, disruptions in global trade and geopolitical fragmentation.

Despite facing some criticism for reducing its growth forecasts as announced in its bi-annual WEO released last April, the organisation has modelled the forecasts within an acceptable level of accuracy. Since the 2008 global financial crisis, the IMF’s April reports have, on average, forecasted year-end global growth with an error margin of 0.11 percentage point.

GCC's robust growth paving way in a region on a slow trajectory

The current regional categorisation of the IMF’s forecasts may not offer an in-depth perspective on specific nations listed within each category. This observation is particularly pertinent when considering the Gulf Cooperation Council (GCC) nations.

The IMF’s growth projections span five primary regions: the United States (US), Eurozone, Middle East and Central Asia (ME&CA), Emerging and Developing Asia, Latin America and the Caribbean and Sub-Saharan Africa. Within ME&CA, the GCC nations are included alongside other countries that exhibit diverse economic structures and conditions. Unlike the other countries within this category, the GCC countries are expected to perform differently due to their dedicated pursuit of economic diversification, an ambitious vision that has been developed over several years. These nations collectively constitute 35% of the ME&CA region and are poised to further dominate the cluster, largely due to their high growth potential.

In this context, it is imperative to analyse the GCC countries as a distinct cluster, separate from ME&CA, to truly grasp the noteworthy economic developments unfolding in this area. The IMF acknowledges regional disparities, particularly between developed markets and emerging markets, however, it does not detail the discrepancies within regions. In 2024, ME&CA is anticipated to grow at a slower pace compared to emerging markets, despite the robust performance of the GCC countries within the region, with an estimated 3.7% growth, following the emerging markets trend.

Indeed, the analysis of aggregate performance of the GCC reveals that the IMF has consistently upgraded the GCC’s longer-term outlook since the Covid-19 pandemic. The upgrades are primarily tied to the commodity market and, to a lesser extent, development projects. More compellingly, the upward revisions occurred despite unavoidable monetary policy tightening, as GCC economies are bound by currency pegs to follow US monetary policy decisions.

The consolidated projections indicate that, despite the slowdown in 2023, the GCC economy is poised to maintain growth in the following years at an approximate rate of 4%. A noteworthy upward trend is evident in Qatar’s medium-term projections. The organisation expects Qatar’s growth to accelerate with an impressive rate exceeding 6% in 2027, driven by the North Field Expansion project, a historical development aiming at significantly increase LNG production.

GCC’s promising future

The IMF emphasizes the importance of corrective policies in mitigating potential risks associated with the disinflationary process and slowing economies. Implementing fiscal measures to support economic activity and protect vulnerable segments comes at a cost and not all countries are ready to shoulder this burden. Additionally, the IMF highlights the growing concerns over soaring debts and advises the emerging economies to pursue deeper fiscal consolidation.

In contrast, Qatar stands out thanks to prudential measures that have been implemented over the recent years, which have allowed it to have substantial resources to support the economy during challenging times. According to IMF projections, Qatar will maintain a stronger fiscal position compared to its counterparts, as evidenced by the amount of financial assets available for lending.

The positive outlook of the GCC economy strongly relies on the continuation of the structural reforms, which are crucial for reviving medium-term growth prospects, particularly given the restricted policy manoeuvre. In its regional assessment, the IMF acknowledged the GCC countries' outstanding progress in reforms, such as labour market, external sector and credit market flexibility, outperforming many other emerging markets.?