Moody’s credit rating agency said that the continuation of OPEC + cuts in its oil production next year will limit the upward trend in real GDP growth in Gulf countries. However, the real GDP expansion in Kuwait next year will exceed the levels achieved between 2010 and 2019.
Moody’s stated that oil revenues in Kuwait amounted to 91% of total budget revenues last year, and the oil sector accounted for about 42% of the country’s real GDP, reports a local Arabic daily.
In its report on credit projections for the year 2023, the agency indicated that economic growth is expected to remain strong for oil and gas producing countries in the Middle East in 2023, which supports government revenues, explaining that the credit outlook for next year is negative, as rising commodity prices, inflation and slowing economic growth may lead to Global to increase social risks around the world.
The sources said although global inflation will begin to decline, energy and food prices will remain high, which will limit economic growth and increase social unrest. The ability of governments around the world to respond effectively varies according to their financial and institutional capabilities. At the same time, the tightening of fiscal policies and the negative economic effects will push the debt burdens of some countries to unprecedented levels, while the high borrowing costs of some countries will lead to the erosion of their financial and economic capabilities to bear debts.
Moody’s added the risks of defaulting on government debts in emerging countries, and in these difficult economic conditions, are considered higher. Indeed, these countries will need to borrow huge funds in 2023, and they have low foreign currency reserves and that the positive trends of credit will be more evident for oil and gas producers who will benefit from higher crude prices, while some other governments will show wide flexibility in facing the latest round of economic recession expectations next year.
Moody’s expects global GDP growth to slow down to 1.7% in 2023, from 3% in 2022, as rising prices, inflation and tightening monetary policies around the world will harm consumer spending and negative impacts on investment and broader economic certainty, with Europe likely to witness the largest economic slowdown. Global, as the decline in oil and gas supplies from Russia leads to a rise in energy prices in the continent, and the gross domestic product in most European countries will shrink in 2023.
It also suggested that economic growth in the United States would also slow down sharply, to 0.4% in 2023, with industrial production declining for two consecutive quarters, as raising interest rates leads to a reduction in consumption and investment. The country’s high inflation, which leads to tighter monetary policies, is also a major risk to the global economy in the coming year.
Geopolitical factors and potential sovereign obstacles around the world, the sources said, would fuel economic uncertainty. The military conflict between Russia and Ukraine will continue to represent a credit risk to different countries around the world and pointed out that the rise in food and energy prices will exacerbate social and political risks around the world, pointing out that despite expectations of a gradual decline in inflation in 2023, prices will remain higher than they were before the Russian-Ukrainian war, especially for food and energy, which represent a greater share of household consumption.
The agency said that inflation reduces the purchasing power of families and exacerbates inequality in income levels. A slowdown in global economies is also likely to lead to higher unemployment rates and that global governments have put in place measures of financial support to varying degrees, which in turn mitigated the effects of inflation. However, financial and economic policy makers around the world will face very difficult choices in 2023, ranging from continuing to support their economies, avoiding an increase in inflation, and restoring financial positions that have not yet fully recovered from the shock of the pandemic.
Moody’s confirmed that emerging markets will be more vulnerable to social risks in the coming year, explaining that rapid population growth, high dependence on food imports, and exposure to climate-related risks make the Middle East and North Africa and parts of sub-Saharan Africa more vulnerable to social risks related to food and energy prices.
However, Moody’s said, the advanced economies around the world will not be immune from social risks in 2023. Decision-makers will also face difficult choices between providing financial support to companies and families, limiting the damage to their financial positions, and avoiding an increase in inflation.
The agency expected that the tightening of monetary policy around the world in 2023 will be more modest than it was during the pandemic, in order to manage the increasing social pressures. The average government debt burden rated by us will remain stable next year, but slowing real growth and rising borrowing costs will make it difficult for governments to return to the low levels of debt that prevailed before the pandemic.
