Economic growth in Saudi Arabia and most other Arab oil exporters will slow this year following production cuts aimed at propping up energy prices, the International Monetary Fund said yesterday.
In its latest World Economic Outlook report, the IMF cut its 2017 growth forecast for the region comprising the Middle East, North Africa, Afghanistan and Pakistan to 2.6%, down from the 3.1% projected in January.
“The subdued pace of expansion reflects lower headline growth in the region’s oil exporters, driven by the November 2016 Opec agreement to cut oil production,” the Washington-based IMF said.
It “masks the expected pickup in non-oil growth as the pace of fiscal adjustment to structurally lower oil revenues slows,” the IMF added, referring to measures to cut budget deficits.
Opec members, mostly from the region, agreed last year to reduce output by 1.2mn bpd from January 1 for six months, to support crude prices that had shed half of their value since mid-2014.
“Growth in Saudi Arabia, the region’s largest economy, is expected to slow to 0.4% in 2017 because of lower oil production and ongoing fiscal consolidation, before picking up to 1.3% in 2018,” the IMF said.
It said that growth is likely to dip in most Gulf Cooperation Council member states, which also include Bahrain, Kuwait, Oman, Qatar and the UAE. One bright spot is gas-rich Qatar which is expected to register 3.4% growth this year, compared with 2.7% in 2016. Kuwait’s economy, in contrast, is forecast to shrink by 0.2%.
In Algeria, the IMF sees economic growth of 1.4% this year, down from 4.2% last year. Growth is also predicted to slow sharply in Iran, to 3.3% in 2017, from 6.5% last year when the Islamic republic won a boost from the lifting of economic sanctions. Iraq’s economy is expected to contract by 3.1% in 2017 after surging by 10.1% last year on the back of expanding oil exports after sharp contractions in the previous two years. The overall figure for the region overshadows a faster pace in many of its oil-importing countries.
Morocco’s economic growth is forecast to jump from 1.5% last year to 4.4% this year, while Tunisia’s economy is seen expanding by 2.5% compared with just 1% the year before. On the other hand Egypt, whose currency plummeted in value after authorities floated it in November, will see slower growth of 3.5% this year, compared with 4.3% last year. “In Egypt, comprehensive reforms are expected to deliver sizeable growth dividends, lifting growth...to 4.5% in 2018,” it said.
The emergence of protectionist forces could undermine a modest brightening of the global growth outlook and is putting severe strain on the post-World War II economic order, the International Monetary Fund said.
The IMF raised its forecast for global growth to 3.5% this year, up 0.1 percentage point from January, the Washington-based fund said in the latest update to its World Economic Outlook. Expansion will pick up to 3.6% in 2018, unchanged from the projection three months ago. The upgrade offers a glimmer of optimism following a trend in recent years of the fund downgrading its growth forecasts.
The pickup is being fuelled by “buoyant” financial markets and a long-awaited cyclical recovery in manufacturing and trade, the IMF said. Still, global growth remains subdued compared with past decades, and the risk of “trade warfare” is still hanging over the world economy, IMF chief economist Maurice Obstfeld warned.
“The global economy seems to be gaining momentum – we could be at a turning point,” Obstfeld said in a foreword to the outlook. However, “the post-World War II system of international economic relations is under severe strain despite the aggregate benefits it has delivered - and precisely because growth and the resulting economic adjustments have too often entailed unequal rewards,” he added.
The sunnier outlook will hearten finance ministers and central bankers from the IMF’s 189 member countries as they meet this week in Washington for the fund’s annual spring meetings. In an interview last week with Bloomberg Television, Christine Lagarde said “we see spring in the air of the global economy.”
It will be the first spring meetings in Washington since the inauguration of US President Donald Trump, who has promised to take an “America First” approach to foreign policy. After Trump declined last week to follow through on his campaign promise to brand China a currency manipulator, policy makers will be watching closely to see if his administration is backing down from its most hawkish trade
threats, or merely picking its battles. The IMF left its US forecast unchanged for this year and next, at 2.3% and 2.5% respectively, after raising its projections in January on Trump’s plan to cut taxes and lift infrastructure spending.