Arab economies set for growth
dubai — The pace of economic activity in Arab countries is projected to rise 2.7 per cent in 2018, mostly driven by a pick-up in oil exporting countries on the back of a return of oil production to previous levels and an anticipated hike in oil prices, the latest forecast by the Arab Monetary Fund (AMF).
Apart from the expected increase in oil prices, albeit at a lower rate than expected this year, the oil exporting countries will also benefit from the gradual fading of the impact of fiscal corrective measures on the aggregated demand levels, said the Abu Dhabi-based fund.
“The growth in some countries within this group will also be supported by the relative improvement in internal conditions. The expected improvement in the economic performance of this group of countries will include both the GCC and other Arab oil-exporting countries, whose growth rate is expected to increase to 2.2 per cent and three per cent, respectively,” the AMF said in its Arab Economic Outlook (AEO).
In 2017, Arab economies are projected to grow by 2.3 per cent as a result of the decline in growth rate of the Arab oil-exporting countries to 1.8 per cent.
“This is due to the decline of oil production reflecting the commitment of these countries to the Opec agreement to adjust production quantities to balance the world oil market,” said the AMF forecast.
“The fiscal corrective measures and the anticipated increase in interest rates in several of these countries will continue to affect the growth levels in non-oil sectors. Within this group, the growth rate of the GCC countries is expected to reach 1.7 per cent in 2017 compared to 1.9 per cent in 2016, while the economies of the other Arab oil-exporting countries are expected to grow by 1.1 per cent compared to 1.6 per cent last year,” said the AEO.
On the contrary, the expected improvement in the economic activities in Arab oil-importing countries will partially offset the decline in expected growth of those countries. The former group of countries is expected to achieve a relatively high growth rate, estimated at 3.9 per cent this year, amid expectations of improved external demand due to the growth of the world economy and international trade.
In addition, Arab oil-importing countries will also benefit from the positive impact of economic reforms adopted to support economic growth, the improved internal conditions and the emergence of some of these countries as regional hubs for trade and investment flows.
“Unfavourable global economic developments have impacted the macro-economic performance of the Arab countries in light of the continuation of the sluggish recovery of the global economy, the outward of capital flows from developing and emerging markets economies, and the declining trend of oil prices,” the AEO noted.
The inflation rate in Arab countries may reach 9.8 per cent and 9.6 per cent in 2017 and 2018, respectively, due to internal and external factors, according to the AEO.
In 2016 the Arab economies saw a rise in inflation rates to about 8.4 per cent, compared with about 6.6 per cent recorded during 2015.
The fiscal corrective measures and the anticipated increase in interest rates in several of these countries will continue to affect the growth levels in non-oil sectors Arab Monetary Fund
“This increase reflected the effect of reforms adopted to rationalise subsidy systems, especially for fuel and energy products in most of the Arab countries, as well as the impact of measures that have been taken by some countries to rationalise imports of luxury goods due to of pressures on the exchange rates. The inflation rate in 2016 was also affected by the internal conditions in some countries and their impact on the supply of goods and services,” the report said.
“Internally, the general price level will be impacted in some Arab countries by the continuation of reforms aiming at rationalising subsidy systems, the adoption of value-added taxes as well as the tendency towards imposing taxes on harmful goods. On the other hand, the expected improvement in the agricultural production will mitigate part of the inflationary pressures in some Arab countries,” it said.
On external factors, it stated the inflation rates will be influenced by the expected increase in international oil prices in line with the agreement between the main oil exporting countries to adjust production as well as the expected increase in the dollar value against the other major currencies, which will reduce the value of imports in Arab countries adopting fixed exchange rate regimes against the dollar.
— issacjohn@khaleejtimes.com