Global growth steady, GCC re­mains re­silient

KAMCO re­port on IMF World Eco­nomic Out­look

Kuwait Times - - BUSINESS -

KUWAIT: Global growth fore­casts left un­changed from April-17 ex­pec­ta­tions: IMF left its global growth es­ti­mates for 2017 and 2018 un­changed at 3.5 per­cent and 3.6 per­cent re­spec­tively, in its World Eco­nomic Out­look (WEO) up­date re­leased in July 2017. How­ever, con­tri­bu­tion to global growth from con­stituents at the coun­try level was dif­fer­ent, as US growth was brought down to 2.1 per­cent for both 2017 (-20bps ) and 2018 (-40bps), while Ja­pan and Euro Area growth were pushed up. Emerg­ing Economies growth in 2017 higher than Apr-17 ex­pec­ta­tions: Re­gion­ally, the growth of Ad­vanced Economies was kept sta­ble in 2017, but was low­ered by 10 bps for 2018 (1.9 per­cent).

The down­grade was driven by neg­a­tive re­vi­sions in US growth, de­spite pos­i­tive re­vi­sion in Euro coun­tries such as France, Ger­many, Italy and Spain, where Q1-17 growth sur­prised pos­i­tively. Emerg­ing Economies con­tin­ued to see pos­i­tive re­vi­sions in growth, as 2017 growth (4.6 per­cent) was re­vised higher driven by growth of com­mod­ity im­porters, while early signs of im­prove­ment are start­ing to emerge as well from large com­mod­ity ex­porters. Saudi Ara­bia’s growth slashed by 160 bps for 2017: Saudi Ara­bia’s Real GDP growth for 2017 and 2018 are pro­jected to be lower at 0.1 per­cent (-30bps) and 1.1 per­cent (-20 bps) re­spec­tively, than ear­lier ex­pected. These down­ward re­vi­sions were mainly as­cribed to the ex­pected im­pact of lower oil pro­duc­tion, fol­low­ing the agree­ment to ex­tend pro­duc­tion cuts un­til Mar-2018, as agreed in the OPEC meet ear­lier in 2017.

Oil pro­duc­tion cuts, firm­ing global growth should keep GCC fis­cal ini­tia­tives go­ing: De­spite the IMF re­it­er­at­ing that global growth is sta­bi­liz­ing, over­sup­ply con­cerns in oil mar­kets and oil in­ven­tory over­hang have led to oil prices drop­ping be­low $ 50/b. For GCC coun­tries, lower prices and pro­duc­tion cuts should be coun­ter­pro­duc­tive to oil-GDP fore­casts, which should wit­ness down­ward re­vi­sions sim­i­lar to Saudi Ara­bia, if oil prices do not re­cover. Nev­er­the­less, KAMCO Re­search be­lieves that more firm­ing of global growth would sta­bi­lize oil prices and the cur­rent back­drop of low oil prices and sta­ble global growth should fur­ther set the prece­dent for fur­ther fis­cal and rev­enue con­sol­i­da­tion mea­sures for GCC coun­tries.

Non-oil econ­omy in GCC

IMF fore­casts av­er­age oil prices to in­crease by $9.1/b in 2017, from an av­er­age of $42.8/b achieved over 2016 to $51.9/b. Fur­ther, a mar­ginal in­crease to $52.0/b is fore­casted for 2018. The re­cent agree­ment in May-17 to ex­tend pro­duc­tion cuts un­til Mar-18 should re­sult in lower oil rev­enues for GCC coun­tries for 2017. Nev­er­the­less, there has been im­prove­ments seen in the non-oil sec­tors of Saudi Ara­bia and UAE with PMI num­bers pub­lished by Emi­rates NBD show­ing sharp in­creases in out­put and other in­di­ca­tors. KAMCO Re­search ex­pects this trend to con­tinue if global growth is ex­pected to sta­bi­lize fur­ther, as pol­icy ini­tia­tives should lead to more im­prove­ment in key in­di­ca­tors re­lat­ing to the non-oil econ­omy.

The in­cre­men­tal im­pact of newer chal­lenges seem to be di­min­ish­ing in our view, as the re­gions seems fo­cused on fis­cal con­sol­i­da­tion and bol­ster­ing rev­enue side ini­tia­tives. US growth was re­vised down from 2.3 per­cent to 2.1 per­cent in 2017, while 2018 growth was re­vised down more from 2.5 per­cent to 2.1 per­cent, which pulled down GDP of Ad­vanced Economies by 0.1 per­cent. US growth for 2017 was re­duced pri­mar­ily due to a weak Q1-17, while the re­vi­sion for 2018 was mostly as­cribed to the ex­pec­ta­tion of a less ex­pan­sion­ary fis­cal pol­icy. UK growth was also brought down for 2017 by 30 bps to 1.7 per­cent, due to weaker than ex­pected eco­nomic ac­tiv­ity in Q1-17. On the other hand, Euro area growth picked up the slack in growth, and es­ti­mates was pushed up both for 2017 (+20bps) and 2018 (+10bps). Key driv­ers for the up­grade are, stronger mo­men­tum in do­mes­tic de­mand and pos­i­tive growth re­vi­sions to high fre­quency in­di­ca­tors for Q2-17, as per the IMF. Ja­pan is also ex­pected to grow faster than prior ex­pec­ta­tions, as pri­vate con­sump­tion, in­vest­ment, and ex­ports drove Q1-17 growth and sim­i­lar in­di­ca­tors look promis­ing for Q217 as well. CPI fore­casts for Ad­vanced Economies were re­vised lower by 10bps each for 2017 and 2018 and are slightly un­der 2 per­cent per an­num.

Mixed re­vi­sion in fore­casts

Emerg­ing and de­vel­op­ing economies are fore­casted to see a sus­tained growth in ac­tiv­ity, with GDP growth ris­ing to 4.6 per­cent in 2017 (+10bps) and 4.8 per­cent in 2018. In­dia and China con­tinue to dom­i­nate as the fastest grow­ing large economies in the re­gion.

China’s GDP growth was re­vised up­wards by 10bps and 20bps re­spec­tively to av­er­age 6.7 per­cent per an­num over 2017 and 2018. The up­grade re­flects stronger than ex­pected growth that came in Q1-17 un­der­pinned by pre­vi­ous pol­icy eas­ing and sup­ply-side re­forms, as per the IMF. In Emerg­ing and De­vel­op­ing Europe, growth is fore­casted to be faster in 2017 (+50 bps), driven by higher growth from Turkey, where ex­ports re­cov­ered strongly in Q4-16 and Q1-17. IMF ex­pects ex­ter­nal de­mand to be stronger with im­proved prospects for Euro area trad­ing part­ners. MENAP (Mid­dle East, North Africa and Pak­istan) growth was re­tained for 2017, but brought down by 10 bps for 2018, likely due to the re­duc­tion in growth of Saudi Ara­bia for the year, and risks of lower oil prices on the GCC re­gion.

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