Two years after the outbreak of the COVID-19 pandemic, the global economy continues to face risks from a slow vaccine roll-out and fears of new waves and variants of the virus, the latest of which is the Omicron variant. These factors might affect the economic recovery realized in 2021. Prospects for 2022 and 2023 are still positive, with the global economy expected to grow by 4.1 per cent in 2022 and 4.2 per cent in 2023. This growth is projected to be unevenly distributed across different parts of the world, however. Developed countries that enacted generous fiscal and monetary stimuli and pursued fast vaccine roll-outs can expect relatively high growth rates over 2022 and 2023, while developing States with slower vaccine roll-outs, limited fiscal space and increasing risks of debt crises are likely to struggle with the repercussions of the pandemic in the short term.

Consumer price inflation is projected to remain elevated and reach 3.2 per cent in 2022 and 3.4 per cent in 2023 as a result of rising commodity prices, resurgence in demand and disrupted supply chains. By July 2021, the price of the Organization of Petroleum Exporting Countries (OPEC) basket exceeded $75 per barrel while oil demand recovered to around 60 per cent of the volume lost in 2020. While an ESCWA model projects that the price of oil will maintain its July 2021 levels, oil demand is expected to return to pre-pandemic levels by the end of 2022.

In the Arab region, the hydrocarbon sector continues to be the primary source of public revenue, generating more than 50 per cent of revenue for most Arab oil-exporting countries. Diversification in the export portfolios of these countries fell behind in the last decade, making them more vulnerable to global commodity market shocks. This lack of diversification accompanies a huge increase in international transport costs and slow recovery in hydrocarbon markets. The situation underscores the urgency of moving diversification forward.