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Oil production cuts to weigh on GCC growth in 2023

Khatija Haque - Head of Research & Chief Economist
Published Date: 06 April 2023


We have revised our 2023 GDP growth forecasts for several GCC countries lower, following the announcement of voluntary oil production cuts by Saudi Arabia, the UAE, Kuwait and Oman from May through the end of 2023. For the region as a whole, we now forecast headline GDP growth at 2.3% for 2023, down from 3.2% previously.

The biggest voluntary cuts will come from Saudi Arabia which will reduce oil production by 500k b/d from May.  If the cuts are maintained through the end of 2023, average crude production this year will decline by more than 4% from 2022 levels.  While investment in boosting capacity in the oil & gas sector will continue, we now expect overall hydrocarbon GDP to decline by -2.0% in 2023 against a previous forecast of 2.0% growth. With the non-oil sector growth estimate unchanged at 4.8%, headline GDP for the kingdom will likely reach 2.1% this year, a full percentage point lower than we had previously expected.

The UAE indicated it would voluntarily cut crude oil production for 2023 by 144k b/d from May, which would also result in a decline in average output this year relative to 2022. However, the UAE has brought forward planned investment in oil & gas capacity in order to reach 5mn b/d by 2027 rather than 2030, which will support growth in the hydrocarbons sector even as crude production declines.  At this stage, we still expect oil & gas GDP to contribute positively to overall growth, although to a smaller extent than previously envisaged. As a result, we have revised our 2023 UAE GDP growth forecast down to 3.4% from 3.9% previously, with our forecast for non-oil sector growth remaining unchanged at 3.5%.

Similar adjustments to hydrocarbon sector growth forecasts for Kuwait and Oman result in downward revisions to headline GDP growth to 0.2% (previously 2.4%) and 1.7% (previously 2.8%) respectively, again with no changes to non-oil sector growth estimates at this stage.   

2023 GDP growth forecasts revised lower in the GCC

Source: Haver Analytics, Emirates NBD Research

Budget impact and breakeven oil prices

We had already revised our forecasts for GCC budgets lower on the back of our downward adjustment to the 2023 oil price estimate a couple of weeks ago. Reducing the amount of oil produced and sold will further negatively impact budget revenues for oil exporting countries.

For the whole GCC, the forecast budget surplus for 2023 is now 1.8% of GDP from 2.5% previously. We now expect Saudi Arabia to run a close to balanced budget, while Kuwait is likely to post a small deficit of -0.3% of GDP. The UAE’s forecast surplus has been reduced to 5.6% of GDP from 6.2% of GDP previously.

With fewer barrels of oil produced this year, the break-even oil price (the oil price required on each one in order to balance the budget) rises as well, unless government spending is reduced proportionately or non-oil revenues increase. The UAE’s breakeven oil price is not easy to estimate as revenues are split into tax and non-tax revenue (not oil and non-oil). However, we think the UAE’s break-even oil price in 2023 is likely to be between USD 60-65/b, the lowest in the GCC.

Etimated fiscal breakeven oil prices have crept higher

Source: Emirates NBD Research

External balances to remain in surplus

Current account surpluses have also been adjusted to reflect lower volumes of oil produced and exported relative to expectations at the start of the year. All GCC countries are still expected to run current account surpluses in 2023, with the weighted average for the region at 12.5% of GDP this year, down from an estimated 16.8% in 2022.