IMF reduces growth forecast for Middle East amid oil price fall

The IMF cut its forecast for regional growth this year amid lower oil prices and faltering trade flows.

The fund expects the Middle East, North Africa, Afghanistan and Pakistan to grow by 2.9 per cent this year, down from its earlier prediction of 3.3 per cent.

“Oil price declines will sharply slow growth for oil exporters, especially those that also face difficult initial conditions,” said Olivier Blanchard, chief economist at the IMF.


“There has been a transfer of income from oil-exporting countries to oil importers. For the oil exporters it is clearly not very good news.”

The IMF expects growth in the UAE of 3.5 per cent this year. That is down 1 percentage point from its prediction last October.

“The fall in oil prices has cast a cloud over the Gulf economies,” said Jason Tuvey, emerging markets economist at Capital Economics.

“This has been reflected in lower growth forecasts, where growth will be much lower than it has been for the last decade or so.”

Still, the IMF expressed cautious optimism over growth prospects for North Africa.

“It has been a difficult few years with a transition to new political regimes and a European economy that was decelerating,” said Thomas Helbling, a researcher at the IMF.

“Countries like Tunisia have made significant progress on reforms, and looking forward, the fact that Europe is recovering should help,” he said.

The IMF left its headline forecast of global growth unaltered at 3.5 per cent.

Global trade will grow at 3.3 per cent this year, down from its previous forecast of 4.0 per cent, according to the World Trade Organization.

“The UAE will be affected by lower global trade growth, given how dependent it is on global trade flows, and its position as a logistics hub,” Mr Tuvey said. “But it has been known for a while that trade growth was not going to return to pre-2008 levels. So it doesn’t materially alter the outlook for the UAE in the coming years.”

Roberto Azevedo, the WTO’s director-general, said: “There has only been one other period since the Second World War in which trade growth has been so weak, and that was from 1980 to 1984.

“However, that period included two outright contractions in trade due to the oil shock and the global recession of 1980-81.”

This worsening picture comes as economists, including the former US treasury secretary and Obama adviser Larry Summers, warned of the threat of “secular stagnation”, in which advanced economies experience a prolonged period of slow growth.

Mr Blanchard rejected the label of stagnation, but said that “[growth] prospects are more subdued. And more subdued prospects lead, in turn, to lower spending and lower growth today.”

An ageing population and long-term declines in productivity that started even before the 2008 financial crisis have hardened into permanent constraints on growth in advanced economies, Mr Blanchard said.

abouyamourn@thenational.ae

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