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Riyadh maintains its economic lead

26 May 2023

 

Saudi Arabia has continued the performance it enjoyed heading into 2023 in the MEED Economic Activity Index, consolidating its lead with a combination of robust growth and sustained activity in its projects market.

Riyadh already enjoyed the fastest rate of real GDP growth in the region in 2022, at 8.7 per cent, and is maintaining 3.1 per cent growth in 2023 despite the current oil economy downsides. Its projects market has now seen two years of consecutive well-above-average activity, with $62bn in contract awards in the past 12 months.

As Brent crude oil prices have slipped and Opec+ production cuts have come into effect, energy exporters have seen their economic fortunes wane to varying degrees. For economies across the Middle East and North Africa (Mena), elevated inflation is also straining public finances as countries subsidise key imports.

GCC growth

The UAE is set to maintain 3.5 per cent real GDP growth, to be buoyed by non-oil growth in sectors such as real estate, leisure and tourism. The country is maintaining wide fiscal and current account surpluses and generally strong economic fundamentals across the board. 

The only caveat to its performance has been some slippage in project activity, with significant project completions seeing value exit the market above the level of replacement by project awards, which continue to sit well below historic levels.

Qatar is in a similar position. Its strong underlying economic fundamentals are being undermined to a degree by slippage in the country’s projects sector, which has also rapidly shed value as legacy projects have wrapped up. 

At the same time, Qatar’s projects market has been bolstered by a surge in energy industry spending, led by gas production maintenance on the North Field.

Kuwait is currently forecast for just 0.9 per cent real GDP growth in 2023, by far the most dismal projection in the GCC. 

Despite its sustained fiscal resilience, the country has a weak non-oil economy that is stymied further by the government’s conservative project spending. Kuwait’s projects market shed $70bn in value in the past five years, against less than $20bn in project contract awards.

Oman, though a slightly less solvent GCC member, is set for 1.7 per cent real GDP growth in 2023 and the lowest consumer price inflation rate in the region for the year, at 1.9 per cent. However, the country’s projects market is also tracking downwards at present.

Bahrain, the final GCC entry in the index, has sound growth and low unemployment, but continues to be weighed down fiscally by its debt trap, with the country continuing to borrow even at higher oil prices. Its projects market is also in a dismal state, with contract awards down by three-quarters on the country’s average annual awards in the past five years.

For economies across the Middle East and North Africa, elevated inflation is straining public finances as countries subsidise key imports

Mena performance

Jordan is in the opposite boat from the lower-performing GCC members. Its fiscal ill health is temporarily a secondary concern to the positive growth story in its projects market. 

The award of the $3bn Zarqa refinery expansion project, which has been in the works since 2002, is a huge boost to the country’s projects sector. The largest single award in the country ever recorded by regional projects tracker MEED Projects, it alone has made 2023 the best year for Jordan’s projects market since 2014.

Egypt’s 3.7 per cent real GDP growth forecast for 2023 is among the best in the region, but the country is still labouring under high inflation and persistent current account and fiscal deficits. The flip side of this is that the country has maintained its project spending, with an above-average award value in the past 12 months.

Iraq is also forecast for 3.7 per cent growth and has a strong trade surplus at present. While its projects sector has been in freefall this past year, a proposed record budget for 2023 could quickly reverse that trend.

Libya is set for the region’s highest growth rate, in theory, at 17.5 per cent, as the country’s oil industry returns to functionality after a year of contraction. The country remains fragile, with one in two young people unemployed. The country’s projects market is heading in a generally positive direction, however.

Algeria is on track for modest growth, ongoing high inflation and a deepening deficit amid the oil sector downsides. A lack of project activity is also weighing on the market.

Iran is battling fierce consumer price inflation, with a projected rate of more than 40 per cent in 2023, and faces general fiscal weakness amid ongoing sanctions. Project activity, however, has been on the uptick in the country in the past year.

Morocco and Tunisia both continue to struggle with twin current account and fiscal deficits and rising debt. While Morocco has higher growth forecasts for 2023, its projects market has witnessed a steep decline in the past year. Tunisia has weaker growth, but its projects market remains more stable.

The economies of Yemen and Lebanon are meanwhile set to contract this year. Both countries face persisting inflation changes, though Lebanon is dealing with more severe challenges and has 30 per cent unemployment.

About the index

MEED’s Economic Activity Index, first published in June 2020, combines macroeconomic, fiscal, social and risk factors, alongside data from regional projects tracker MEED Projects on the project landscape, to provide an indication of the near-term economic potential of Middle East and North African markets.

View the January 2023 index here

 

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John Bambridge

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