GCC bilateral trade with Asia to surpass advanced economies by 2028

01 March 2023 Consultancy-me.com 4 min. read
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Bilateral trade between the Gulf Cooperation Council (GCC) and Asia will accelerate in the coming years, and is set to reach $578 billion by the end of this decade as Gulf economies increasingly pivot to the fast-growing East.

According to new research by UK-based think tank Asia House, two-way trade between the GCC and Asian markets will grow at almost 6% per year over the next decade, in the process seeing the East surpass the GCC’s trade value with advanced economies by 2028.

Advanced economies are defined by the IMG as economies having a high level of per capita income, a varied export base, and a financial sector that’s integrated into the global financial system. As of 2023, around 40 nations are classified as advanced economies.

GCC-emerging Asia trade (2010–2021) and 2030 forecast

“Rapidly expanding ties between the Gulf and Asia are creating a fundamental global shift that will have far-ranging implications for international trade, business and politics. The investment corridor is growing in both directions and across various industries, including oil and non-oil sectors,” said Freddie Neve, an Associate at Asia House and co-author of the report.

The report found that GCC-Asia trade has recovered strongly since Covid-19. Having fell from $320 billion in 2019 to approximately $262 billion in 2020 (a drop of 18%), trade has since recovered considerably, and amounted to approximately $366 billion at the end of 2021, $46 billion more than in 2019 and an almost 40% rise on 2020 figures.

Not surprisingly, China and India are the top two trading partners in Asia, followed by Japan and South Korea.

Share of total GCC trade over time (per cent)

The China milestone

Notably, GCC-China trade hit a milestone last year, with the $180 billion recorded a new record – and in a first – higher than GCC’s trade with the US and Euro Area combined. In particular the Saudi-China bilateral relationship has grown considerably over the past years.

China and India alone are expected to contribute more than half of global growth this year, with the rest of Asia contributing an additional quarter.

A 2022 survey by EY identified Asia as the world’s epicenter for growth, with particular note for Southeast Asia. Previous research from McKinsey & Company had already highlighted Asia as home to the bulk of the world’s outperforming emerging economies.

Forecast GCC global trade share over time (per cent)

The drivers of trade

Outwards, growth in trade is expected to be driven by the interest of GCC’s sovereign wealth funds in Asia. With over $2.5 trillion in assets under their command, Gulf sovereign wealth funds have the power to make big ticket investments – and are increasingly doing so. Asia House highlights China, India, and Singapore as the main destinations for these investments.

Meanwhile, inbound trade is driven by Vision 2030 and Gulf economic diversification strategies, which are encouraging greater investments from abroad in non-oil based sectors.

“Gulf economic diversification is moving at a staggering pace, and is attracting Asian investment into emerging economic sectors such as construction, renewables, and technology,” said Neve.

BRI spending 2021 (per cent of total)

China’s Belt and Road Initiative investment continues to benefit the Gulf states. Belt and Road Initiative investments globally stood at $59.5 billion in 2021, with the Middle East and North Africa region receiving the largest share at 29%. In total, Belt and Road Initiative investment into MENA increased by 360% between 2020 and 2021.

“Closer economic and political ties between Asia and the Gulf have the potential to enhance trade and prosperity in both regions, with Asian-Gulf ties becoming a key regional relationship to understand in navigating global trade and politics,” concluded Neve.