IMF cuts Arab growth forecast, but sees Gulf still strong

DUBAI — The International Monetary Fund (IMF) has lowered its economic growth forecasts for most Arab countries over unrest in the region but said growth would remain generally strong in the oil-rich Gulf states.

In its semi-annual World Economic Outlook released Tuesday, the IMF said the Middle East and North African (MENA) region would grow by 2.6 per cent this year, compared with 3.2 per cent forecast in April.

And even though the figure for next year is seen as higher, it was cut from 4.5 per cent to 3.8 per cent. 

"With increased strife in some countries in the region, the projected pickup in growth in 2014... is now projected to be weaker relative" to the April forecast, the IMF said.

"Growth is expected to increase in 2015, assuming that security improves, allowing for a recovery in oil production, particularly in Libya," it said. 

The most spectacular drop is expected in Iraq, whose economy is being hit hard by the conflict between a US-led coalition and the Islamic State group.

The IMF now expects growth to contract by 2.7 per cent this year after it was forecast to grow by a whopping 5.9 per cent.

And oil-dependent Iraq is seen growing only 1.5 per cent next year, compared with 6.7 per cent projected in the April report.

For oil exporters as a whole — the Gulf states, as well as Algeria, Iraq, non-Arab Iran, Libya and Yemen — the IMF lowered 2014 growth forecast to 2.5 per cent from 3.4 per cent. 

And the outlook for 2015 was cut to 3.9 per cent from 4.6 per cent.

The IMF said growth in the six-nation Gulf Cooperation Council (GCC) states is projected to remain strong at an average 4.5 per cent in 2014 and 2015.

The IMF increased its economic growth projections for Qatar, Saudi Arabia and the United Arab Emirates, but lowered those for Kuwait, whose economy contracted by 0.4 per cent last year. 

But it warned of oil price fluctuations due to weaker demand and increased non-OPEC production, particularly from the United States.

Weak growth
outside Gulf

Among the non-GCC oil exporters, and excluding Iran, growth is forecast to average only 0.25 per cent in 2014 given recent political shocks and deteriorating security. It is projected to recover to 3 per cent in 2015, assuming a rebound in oil production in Iraq, Libya and Yemen.

"These assumptions are, however, subject to significant uncertainty," the IMF said.

A key priority for most of the oil exporters is to shore up weakening fiscal balances, the IMF said. The overall fiscal balance is projected to decline from 2 per cent of the gross domestic product in 2014 to 1 per cent in 2015. 

Fiscal surpluses are too low in most GCC countries to enable them to save an equitable share of oil wealth for future generations and are expected to vanish by 2017. 

Meanwhile, all non-GCC oil exporters are running fiscal deficits.

Iranian, whose economy shrank 1.9 per cent last year, is showing signs of recovery. It is expected to grow 1.5 per cent in 2014, unchanged from April's projections, and by 2.2 per cent next year, slightly off from the 2.3 per cent April forecast.

 Oil importers stutter 

The growth outlook for oil-importers has also been lowered slightly from April.

“Economic activity in the oil importers is projected to improve only gradually as they continue to deal with difficult sociopolitical transitions, subdued confidence and setbacks from regional conflicts,” IMF said.

Economies of the so-called Arab Spring countries, mainly Egypt and Tunisia, will continue to be negatively affected by instability, the IMF said.

After growing 2.1 per cent in 2013, Egypt’s economy is expected to expand by 2.2 per cent in 2014, slightly lower from 2.3 per cent expected in April. The forecast for next year has been lowered from 4.1 per cent to 3.5 per cent.

The economy of Tunisia, cradle of the wave of Arab uprisings, is expected to grow 2.8 per cent in 2014, only slightly off the 3 per cent April forecast. 

In 2015, it is expected to see 3.7 per cent growth, compared with 4.5 per cent.