ME growth to dive as Saudi econ­omy slows: IMF

Global re­cov­ery on firmer foot­ing; out­look for US, UK economies low­ered

Kuwait Times - - BUSINESS -

Eco­nomic growth in the Mid­dle East and North Africa is fore­cast to slow con­sid­er­ably over oil prices as the Saudi econ­omy slides, the In­ter­na­tional Mon­e­tary Fund said yes­ter­day. Af­ter a bet­ter than ex­pected per­for­mance with five per­cent growth in 2016, the economies of coun­tries in the Mid­dle East and North Africa as well as Pak­istan and Afghanistan will sub­side to just 2.6 per­cent growth this year, it said.

Last year’s healthy re­gional eco­nomic per­for­mance was mainly at­trib­uted to Iran’s strong growth es­ti­mated at above 6.5 per­cent be­cause of higher crude pro­duc­tion, the IMF said.

In its World Eco­nomic Out­look up­date, the IMF low­ered eco­nomic growth of Saudi Ara­bia, the world’s top oil ex­porter, to just 0.1 per­cent in 2017, down 0.3 per­cent on its April pro­jec­tions. This will be Saudi Ara­bia’s worst growth since 2009 when its econ­omy con­tracted by 2.0 per­cent on the slump of oil rev­enues fol­low­ing the global fi­nan­cial cri­sis.

“The re­cent de­cline in oil prices, if sus­tained, could weigh fur­ther on the out­look for the re­gion’s oil ex­porters,” the IMF said. Af­ter re­cov­er­ing to over $55 a bar­rel fol­low­ing a pro­duc­tion re­duc­tion agree­ment by pro­duc­ers, oil prices re­ceded on strong in­ven­tory lev­els and a pickup in sup­ply.

The IMF pro­jected that re­gional growth will re­bound to 3.3 per­cent in 2018, how­ever. Saudi eco­nomic growth is also fore­cast to re­bound to 1.1 per- cent next year, down 0.2 per­cent­age points on April pro­jec­tions, it said. Saudi Ara­bia’s econ­omy, the largest in the re­gion, grew by 4.1 per­cent and 1.7 per­cent in 2015 and last year re­spec­tively. MENA oil ex­porters have lost hun­dreds of bil­lions of dol­lars since the mid-2014 crash in crude prices, trans­form­ing huge sur­pluses into short­falls.

They have since im­ple­mented some eco­nomic re­forms that have in­cluded rais­ing fuel and power prices. Gulf states, which earn more than 70 per­cent of their rev­enue from en­ergy, have been post­ing bud­get deficits since oil prices fell.

Global re­cov­ery

The global eco­nomic re­cov­ery is on firmer foot­ing as im­prov­ing growth in China, Europe and Ja­pan off­set down­ward re­vi­sions for the United States and Bri­tain, the IMF said. How­ever, wage growth re­mains slug­gish which risks in­creas­ing ten­sions that have pushed some coun­tries to­ward more anti-global poli­cies, while ef­forts to erode fi­nan­cial reg­u­la­tions put in place since the 2008 cri­sis could erode sta­bil­ity, the IMF warned.

“The re­cov­ery in global growth that we pro­jected in April is on a firmer foot­ing; there is now no ques­tion mark over the world econ­omy’s gain in mo­men­tum,” IMF chief econ­o­mist Mau­rice Ob­st­feld said.

Pre­sent­ing the lat­est up­date of the World Eco­nomic Out­look (WEO), he said “re­cent data point to the broad­est syn­chro­nized up­swing the world econ­omy has ex­pe­ri­enced in the last decade.”

The fund still ex­pects the global econ­omy will grow by 3.5 per­cent in 2017 and 3.6 per­cent in 2018, the same as in the April WEO. How­ever, the un­changed fore­cast masks some sig­nif­i­cant re­vi­sions, in­clud­ing in the United States where the IMF down­graded its growth es­ti­mate last month af­ter judg­ing that spend­ing plans promised by Pres­i­dent Don­ald Trump that had been ex­pected to pro­vide a boost to the econ­omy were stuck in limbo.

The US es­ti­mate was cut to 2.1 per­cent for this year and next, down 0.2 points and 0.4 points, re­spec­tively, from the more op­ti­mistic fore­cast in the last re­port.

The out­look for the Bri­tish econ­omy also was re­vised down by 0.3 points to 1.7 per­cent this year on weaker-than-ex­pected ac­tiv­ity in the first quar­ter, while the im­pact of Brexit “re­mains un­clear.” In an up­date to its April fore­casts, the IMF low­ered its 2017 growth fore­cast by 0.3 per­cent­age point to 1.7 per­cent fol­low­ing weaker than an­tic­i­pated first quar­ter fig­ures. Dur­ing the first three months of the year, the Bri­tish econ­omy ex­panded by only 0.2 per­cent, lower than any other Group of Seven econ­omy.

Up­ward re­vi­sions

But those down­ward re­vi­sions were off­set by the im­prov­ing out­look in key economies, in­clud­ing the euro area where growth prospects have im­proved in France, Ger­many, Italy and Spain. The euro area now is pro­jected to see eco­nomic growth of 1.9 per­cent this year and 1.7 per­cent in 2018.

Ja­pan also is see­ing im­proved growth prospects, with an ex­pan­sion of 1.3 per­cent this year ex­pected, al­though that is seen slow­ing sharply to 0.6 per­cent in 2018. Mean­while, China con­tin­ues to be a ma­jor en­gine of global growth, ex­pand­ing by 6.7 per­cent this year, and 6.4 per­cent next, driven by eco­nomic poli­cies in Bei­jing.

The fore­cast for 2017 was re­vised up by 0.1 per­cent­age point, “re­flect­ing the stronger than ex­pected out­turn in the first quar­ter” which the IMF said was un­der­pinned by Bei­jing’s “sup­ply-side re­forms.”

The 0.2-point up­ward re­vi­sion for 2018, how­ever, was the re­sult of the ex­pected de­lay in the “needed fis­cal ad­just­ment,” which could cause risks down the road. China’s “higher growth is com­ing at the cost of con­tin­u­ing rapid credit ex­pan­sion and the re­sult­ing fi­nan­cial sta­bil­ity risks,” Ob­st­feld warned in his pre­pared state­ment.

Key to pros­per­ity

But within the mostly up­beat fore­casts, the IMF once again sounded the warning on the grow­ing anti-global sen­ti­ment, which could leave all economies worse off. That has been fu­eled in part by the fact the ben­e­fits of in­creased growth have not been broadly shared. “Even as un­em­ploy­ment is fall­ing, wage growth still re­mains weak,” Ob­st­feld said. That “not only holds back the im­prove­ment of liv­ing stan­dards, but also car­ries risks of ex­ac­er­bat­ing so­cial ten­sions that have al­ready pushed some elec­torates in the di­rec­tion of more in­ward-look­ing eco­nomic poli­cies.”

While the re­port does not spec­ify any coun­try, it comes amid Brexit talks and the Trump ad­min­is­tra­tion’s con­tin­u­ing fo­cus on “Amer­ica first” poli­cies, in­clud­ing cut­ting bi­lat­eral trade deficits and back­ing away from free trade agree­ments.

The re­port warned that “poli­cies based nar­rowly on do­mes­tic ad­van­tage are at best in­ef­fi­cient and at worst highly dam­ag­ing to all.” Ob­st­feld said, “Strength­en­ing mul­ti­lat­eral co­op­er­a­tion is another key to pros­per­ity.”

Fi­nally, the IMF cau­tioned that “a broad roll­back of the strength­en­ing of fi­nan­cial reg­u­la­tion and over­sight achieved since the cri­sis”-some­thing the Trump ad­min­is­tra­tion is push­ing-could in­crease the risk to global fi­nan­cial sta­bil­ity. - Agen­cies In con­trast, the IMF up­graded its fore­casts for Europe’s main economies, such as Ger­many and France.

De­spite the IMF’s down­grade, Bri­tain’s pro­jected growth is just shy of the euro­zone’s ex­pected 1.9 per­cent growth rate.

In this June 27, 2017 file photo, Chi­nese work­ers on a sus­pended plat­form pre­pare to clean win­dow of a newly opened shop­ping mall against the China’s state broad­caster China Cen­tral Tele­vi­sion (CCTV) head­quar­ters and con­struc­tion build­ings at the Cen­tral Busi­ness District in Bei­jing.

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