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Home > Reports > Annual Report 2022 > Strategic Report > Business Environment In 2022 And Outlook For 2023

Business Environment In 2022


The global economic activity is facing a sharper than anticipated slowdown, and inflation is at its highest level in many years. This year’s growth has been the weakest since 2001, excluding the sharpest phase of COVID-19 pandemic and the global financial crisis in 2007-2009. The Russia-Ukraine conflict, rising costs of living, tightening financial conditions around the world, and the continuing COVID-19 pandemic have all disrupted global markets, triggered global inflation, and contributed to the economic slowdown in 2022. The Russia-Ukraine conflict has also sparked another set of shortages, spiking commodity prices just as the tightening of financial conditions was taking effect. The current global situation can be described as a growth recession in which unemployment rises and real GDP growth falls short of potential growth. However, initial policy responses have helped the world to avoid the worst economic outcome and fueled demand while supply has recovered slowly.


The majority of upside inflation surprises have occurred in advanced economies, with greater variability in emerging markets and developing economies. Higher interest rates in advanced economies, along with the termination of most COVID-19 support measures in 2022, are expected to have spillover effects for emerging and developing economies. Inflation in advanced economies has reached its highest rate since 1982. The Russia-Ukraine conflict has disrupted supplies, adding to inflationary pressures. Additionally, tighter labor markets in many advanced economies are driving up wage rates. The sharpest accelerations in energy prices are occurring in Western Europe, where natural gas prices are exceptionally high.


Moderate growth expansions in Asia Pacific, the Middle East, and Africa offset weaknesses in America and Europe. In particular, European and North American economies, which both account for half of the global output, experienced growth recessions in the later parts of 2022. High inflation and tightening of monetary policies have undermined consumer spending, home-building, and business investment. The energy crisis caused by the Russia-Ukraine war has driven up food and energy prices in Europe, while Asia experienced a more moderate effect on energy and food prices that helped to prevent inflation from rising compared to other regions. However, the Middle East and North Africa (MENA) region benefitted from the increased energy exports.


In 2022, weak industrial production, retail sales, service output, and exports marked a shaky economic recovery. In China, industrial output slowed down due to the double impact of unanticipated downturns in exports and disruptions caused by resurgent outbreaks of the Omicron-variant. Meanwhile, industrial production in the United States decreased in late 2022 in response to decreases in manufacturing and mining. While decline in manufacturing was common across all industry groups, motor vehicles and automotive parts recorded the largest loss. With both durable and nondurable manufacturing declining, it is evident that industrial production is on the brink of recession.


Global Naphtha and LPG prices hit historical levels by the end of the first quarter of 2022 as result of higher oil prices and supply concerns on lower volumes from Russia and Europe due to Ukraine crisis. However, prices since then began to ease slowly with lower oil prices and as a result of lower global demand owing to China Covid lockdowns and lower downstream global demand amid squeezed olefin margins in addition to multiple planned/unplanned cracker outages around the world.

Global natural gas prices also hit historical levels by the end of the first quarter 2022 with Ukraine crisis. Prices since then witnessed high volatility as Russia started tightening its supply to Europe. High competition between Europe and Asia for LNG shipments added to the volatility. U.S natural gas and Ethan also increased during the year supported by weak production growth (due to capital discipline by producers) and bullish local US demand due to US coal plants retirements and Europe demand for US LNG.

Outlook For 2023


The global economic outlook mainly depends on the successful determination of monetary and fiscal policies, the growth prospects of mainland China, and the dynamic of the Russia-Ukraine conflict. The economic risks remain unusually remarkable because there exists a possibility that monetary policy might be miscalculated and not take the right approach to combat inflation; different policy approaches in the world’s biggest economies could exacerbate the US dollar’s appreciation; tightening financial conditions could set off emerging market debt distress; and mainland China’s property sector crisis could diminish growth if it gets worse.

We expect major central banks to continue increasing interest rates in 2023 to combat inflation by slowing the growth of aggregate demand. As the world continues transitioning gradually from a COVID-19 pandemic phase to an endemic phase, we believe there will be less frequent COVID-19-related shortages, thus supporting the recovery of prices on the affected goods in the year ahead.


The global economy will expand even more slowly in the coming year. We expect leading growth from the emerging market and developing economies, which is predicted to surpass the growth of advanced economies. Resilience in the emerging markets of Middle East, Asia Pacific, and Africa is expected to keep the global economy moving forward, but at a slow pace. Both the economic slowdown in the Eurozone and the ongoing Russia-Ukraine conflict are expected to affect emerging Europe. New wholesale bank borrowing conditions are also expected to continue deteriorating as policy rates increase even further in advanced economies, at least in early 2023. The degree of persistence of high inflation along with the central bank’s effort to squash it will determine the degree of slowdowns in those economies, and will be a source of potential spillovers to emerging and developing economies. Historically, many conclusions have been drawn linking the emerging market banking crisis to the monetary policy tightening in advanced economies, such as the Asian financial crisis during the 1990s.


The Asia-Pacific region is expected to lead global growth in 2023, though recession looms in the European Union and the United States. We anticipate a sharp decline in economic activity in the Middle East and North Africa MENA region following very strong growth in 2022; this will be due to moderating oil prices relative to 2022 peaks, higher interest rates, and fragile global demand. Likewise, the Latin America region will undergo a slower growth as recession risks increase, while the Eurozone’s real GDP is set to decline as consumers and businesses will be the most affected by the Russian invasion of Ukraine and the related surge of energy prices. Tightening financial conditions are expected to send the US economy into a recession in early 2023, but Asia Pacific’s competitive emerging markets will generate a solid growth by benefiting from regional trade liberalization.


SABIC expects global industrial production growth to experience slowdown in response to stalled economic reforms. Given the significance of exports for many of Asia Pacific’s economies, a considerable slowdown in world trade will likely damage the region’s industrial production and exports. APAC economies have already been harmed by the volatility in the financial and currency market during 2022, and there is a risk that the degree of damage could extend and intensify in 2023. However, industrial production in China has the potential to grow further in 2023 depending on China’s stance on its zero-COVID policy and lockdown strategy.


Feedstock prices in 2023 are expected to be higher than Q4 2022 levels but not expected to reach the historic levels of Q1 2022 caused by Ukraine crisis. Prices expected to be supported first by winter demand and the EU oil products sanctions on Russia, then by the re-opining of China economy after long lockdowns to control Covid. New cracking capacity coming online in Asia will also add support to prices. LPG Prices are also expected to be supported by high LNG prices as LPG become cheaper alternative energy source. Weak global economy and supply increases driven by strong refining runs in China, India and the Arabian Gulf is not expected to allow feedstock to reach levels witnessed at the beginning of Ukraine crisis.

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