IMF cuts Middle East, global growth forecast

Middle East

The Middle East region will see slower growth in 2020 mainly due to geopolitical tension and cut in oil production under Opec+ agreement while the foreign direct investment (FDI) to the region also fell by 16 per cent last year, according to latest figures released by the IMF and the UNCTAD on Monday.

“Growth in the Middle East and Central Asia region is expected at 2.8 per cent in 2020 – 0.1 percentage point lower than in the October, but the growth will firm up to 3.2 per cent in 2021. The downgrade for 2020 mostly reflects a downward revision to Saudi Arabia’s projection on expected weaker oil output growth following the Opec+ decision in December to extend supply cuts,” said Gita Gopinath, chief economist at the International Monetary Fund (IMF) in the latest World Economic Outlook report.

“We still have to assess how far the regional geopolitical tension goes. By looking at the market response and oil price, the reaction has been muted. We have seen some increase in oil price of $3-$4 a barrel but it all depends on how geopolitical tension takes shape,” Gopinath said while replying to a question at the launch of the report in Davos on Monday.

She said prospects for several economies in the region remain subdued owing to rising geopolitical tensions of Iran, social unrest in Iraq and Lebanon and civil strife in Libya, Syria and Yemen.

The IMF revised down Saudi Arabia’s growth forecast for 2020 by 0.3 per cent to 1.9 per cent but retained 2021 outlook at 2.2 per cent.

The fund cut global economic growth forecast also by 0.1 percentage point for 2019 and 2020 to 2.9 per cent and 3.3 per cent, respectively. It also slashed global economic outlook for 2021 by 0.2 per cent as compared to its previous forecast released in October.

“The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years. In a few cases, this reassessment also reflects the impact of increased social unrest,” IMF’s Gopinath said in the note.

Kristalina Georgieva, managing director of IMF, said some risks have partially receded with the announcement of a US-China phase one trade deal and lower likelihood of a no-deal Brexit.

“Reality is global growth is sluggish. We have avoided the recession, thanks to easing of monetary policy by different countries. The countries should focus on boosting potential growth,” she said.

IMF slashes India’s growth forecast by 1.2 per cent for 2020 and 0.9 per cent for 2021 from its October forecast due to weaker than expected growth in the first two quarters of last year and stress in non-banking financial sector, resulting in sharp slowing in credit growth.

It hiked China’s growth forecast for 2020 by 0.2 per cent following the trade deal with the US last week.

Reflecting the tougher time for the Middle East region on FDI front, the UN Conference on Trade and Development (UNCTAD) also painted dull picture, saying foreign direct investment flows declined 16 per cent to an estimated $25 billion (Dh91.75 billion), from $30 billion (Dh110.1 billion) in 2018.

Flows to Turkey cooled off from $13 billion in 2018 to $8.3 billion due to economic headwinds. Investment in Saudi Arabia increased by nine per cent to an estimated $4.6 billion with some deals outside the oil and gas sector.

Global foreign direct investment (FDI) remained flat in 2019 at $1.39 trillion, one per cent decline from a revised $1.41 trillion in 2018. This is against the backdrop of weaker macroeconomic performance and policy uncertainty for investors, including trade tensions.

“FDI flows are still expected to rise moderately in 2020, as current projections show the global economy to improve somewhat from its weakest performance since the global financial crisis in 2009,” said James X. Zhan, director for investment and enterprise division at UNCTAD.

– waheedabbas@khaleejtimes.com

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