- Decline in unemployment to continue with extensive use of foreign workers enabling flexibility in the labor market
- Non-GCC countries anticipated to face challenges in the form of rising domestic inflation; GCC upward price pressures contained
Notwithstanding the dip in global growth prospects and rising inflationary pressures, KPMG’s Global Economic Outlook H1’2022 mentioned that the economies in the Gulf Co-operation Council — Bahrain, Kuwait, Oman, Saudi Arabia, the United Arab Emirates, and Qatar, are predicted to grow. Contributing to this climb are the increasing energy prices (oil and gas) and the ramifications of the ongoing geopolitical uncertainties.
The first publication of this two-part bi-annual report sheds light on the progress pertaining to pressing global issues of H1’2022 and offers comprehensive forecasts and analyses from the perspective of KPMG’s analysts all over the world.
Here are some of the key findings that surfaced from the report:
The oil and gas prices are expected to continue soaring in 2022 and 2023, driven by their increased production and hike in prices. Moreover, the economic activity in the region is expected to pick up further pace owing to the private sector activity and easing of COVID-19-related restrictions. These trends are likely to support the growth in oil and non-oil sectors, and point toward the dip in unemployment rates. Although the average annual inflation is forecast to be restricted in the 2022–23 period, upward price pressures are likely to be propelled by COVID-19-related supply chain disruptions. The GCC governments’ supply chain management strategies, together with the extensive use of foreign labor, exchange rate peg with the US dollar, and the GCC fiscal positions emerging from towering international energy prices, are likely to dampen the impact of any potential negative economic shock.
Despite the diversity in their economic growth potential, many of the non-GCC countries are subject to risks such as weak fiscal and balance of payments positions, volatile and limited economic growth rates, and low resiliency toward economic shocks. It is assumed that additional lockdown measures will be limited for the group and its trading parties. Following the economic disruption led by COVID-19 containment measures, the fiscal positions weakened further, diminishing the ability of non-GCC economies to recover. Furthermore, import inflation pressures are expected to move upward due to elevated international commodity prices and exchange rate weakness. In addition, the shortage of fiscal resources required to thwart the impact of negative shocks will persist for the governments in the region. The non-GCC countries’ GDP growth rates are predicted to be restrained in the 2022–23 period, preventing local labor markets from gaining strength while high global commodity prices are anticipated to aggravate the region’s economic volatility and uncertainty.
Placeholder for the economic activity of both GCC and non-GCC regions (chart)
Speaking on the overall economic outlook of the country, Dr. Rasheed Al-Qenae, Managing Partner, KPMG in Kuwait said, “Because of the overall resilience resulting from the government’s efforts towards the fight against the COVID-19 pandemic, Kuwait has achieved a staggering vaccination rate, with about 79% of its population [GSS1] having been administered at least one dose. This has helped the country open its borders and enable oil export and other trades. As we publish this report, the crude oil prices in Kuwait are back to pre-pandemic levels, averaging around USD 110 per barrel[GSS2] . The higher oil export, therefore, will help in the overall account surplus which is projected to increase to 16.1% of the GDP.
The financial sector is also on a path to recovery. The recently published thought leadership ‘KPMG GCC Listed Banks Results’ reports a U-shaped recovery for the banks in Kuwait, with the total net profit witnessing a rise of about 91.4% and capital adequacy ratio at 18.6% which is significantly higher than the requirements of the Central Bank of Kuwait. [GSS3]
Another positive finding of the overall economic outlook is the growth of the non-oil GDP. IMF reports a GDP growth of 3.5% in non-oil sectors [GSS4] in 2022, which was at a modest F2% before the pandemic.”
The Global Economic Outlook report highlighted that, depending on what the scenario is, global GDP growth could lie between 3.3%–4% and 2.5%–3.2% in 2022 and 2023, respectively. There is a possibility that the implications of the uncertainties in Europe are amplified beyond the scope of the report’s downside scenario. Given that major economies are still facing COVID-19-driven shutdowns, and the emergence of a new wave could put supply chain at further risk, it is paramount that countries take into consideration the said findings in preparation of their future roadmap.
To read the complete report, please visit home.kpmg/kw.