Saudi Arabia’s economy is expected to grow 7% in 2022, ahead of other GCC member countries, according to the Global Economic Update report by the World Bank. Thanks to the higher oil prices and impressive growth in non-oil sectors, the region has been experiencing massive growth while most countries in the world have been trying to grapple with the negative impact of the war in Ukraine, supply-side disruptions, and the covid-19 pandemic.
The growth figures released by the World Bank are all impressive. But, according to the International Monetary Fund, commodity prices in the region are rising at the highest rates in decades, too.
Higher commodity prices, propelled upwards by the war in Ukraine, and related sanctions will have a significant economic impact on the region. They may eat up the growth figures released by the World Bank.
This surge in prices comes at a precarious time for the region’s recovery.
For oil-importing countries, the IMF marked down their projections, as higher commodity prices add to the challenges stemming from elevated inflation and debt, tightening global financial conditions, uneven vaccination progress, and underlying fragilities and conflict in some countries.
According to the report, the Kingdom’s growth in 2022 will be driven by stronger oil output following OPEC+ production cuts and continued growth in non-oil sectors, supported by stronger consumption, increased tourism, and higher domestic capital spending. The report forecasts a combined growth of 5.9 percent in the GCC countries altogether, driven by the hydrocarbon and non-hydrocarbon sectors.
The World Bank report added that the GCC economies are strongly rebounding after the COVID-19 pandemic, which is primarily accelerated by a massive vaccination rollout, ease in restrictions, and developments in the hydrocarbon market.
It said Bahrain’s economy will be accelerated by 3.5 percent this year due to surging oil prices, while Kuwait will witness a growth of 5.9 percent.
Oman’s economy will grow by 5.6 percent this year, followed by Qatar and the UAE at 4.9 percent and 4.7 percent.
But, the situation is particularly concerning for fragile and conflict-affected states, since strategic reserves cover less than 2.5 months of net domestic consumption. Overall, rising food prices and potential wheat shortages affect the poor more because they allocate a higher share of their expenditure to food. This will add to poverty and inequality and heighten the risk of social unrest.
Commodity price increases will also have a significant negative impact on oil importers’ external accounts. The IMF projects that these countries’ current account balances will deteriorate by 1 percentage point of GDP, on average. For low-income countries, higher wheat prices alone will be a significant blow, worsening current accounts by around 1.2 percent of GDP on average.
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