The International Monetary Fund (IMF) on Tuesday revised down the growth forecast for the UAE and the global economy, blaming China's declining growth, increased trade tension between the US and China and euro economy losing more momentum than expected.
In its latest World Economic Outlook, the IMF predicted that the UAE's real GDP grew 1.7 per cent in 2018 but the growth will pick up to 2.8 per cent in 2019 and 3.3 per cent in 2020. This prediction is lower than its October 2018 forecast when IMF had projected 2.9 per cent growth for 2018 and 3.7 per cent for 2019. It predicted 3.1 per cent inflation for 2018 but it will decline to 2.1 per cent for 2019 and 2020 mainly due to drop in rentals and property prices.
For the Mena region, IMF sees 1.4 per cent growth in 2018 but it will slightly decline by 0.1 percentage point in 2019 but recover strongly in 2020 to 3.2 per cent.
Globally, IMF cut growth by 0.1 percentage point to 3.6 per cent for 2018 from its October 2018 World Economic Outlook due to weakness in the second-half of the year. It predicted 3.3 per cent growth for 2019 before returning to 3.6 per cent in 2020, slashing growth by 0.4 percentage point and 0.1 percentage point, respectively.
"The current forecast envisages that global growth will level off in the first half of 2019 and firm up after that. The pickup in the second half of 2019 is predicated on an ongoing buildup of stimulus in China, recent improvements in global financial markets, the waning of some temporary drags on growth in the euro area, and a gradual stabilisation of conditions in stressed emerging market economies, including Argentina and Turkey," IMF said.
In January 2019, IMF had cut global growth forecast to 3.5 per cent for 2019 and 3.6 per cent for 2020. In October 2018, the IMF had cut its global growth forecasts also due to increased trade tariffs between China and the US, making it the third downturn revision in the last six months.
In October 2018, the IMF had hiked the UAE's growth forecast for 2018 and 2019 on the back of higher oil prices, continued reforms to promote the private sector and increased government spending. With oil production and government spending set to rise, overall growth of UAE was projected to strengthen to 2.9 per cent in 2018 and 3.7 per cent in 2019.
IMF sees improved momentum for emerging and developing counties will continue into 2020 but activity in advanced economies is projected to continue to slow gradually as the impact of US fiscal stimulus fades.
"Beyond 2020, global growth is set to plateau at about 3.6 per cent over the medium term, sustained by the increase in the relative size of economies, such as those of China and India, which are projected to have robust growth by comparison to slower-growing advanced and emerging market economies, even though Chinese growth will eventually moderate," Gita Gopinath, chief economist at IMF, said.
Regionally, IMF predicts that the baseline outlook for emerging Asia remains favourable, while subdued commodity prices and civil strife or conflict in some cases, contribute to subdued medium-term prospects for Latin America; the Middle East, North Africa, and Pakistan region; and parts of sub-Saharan Africa.
IMF noted that the balance of risks to the global outlook are tilted towards downside but if US-China trade differences are resolved quickly, it could surprise global growth favourably due to improved business confidence and better investor sentiment.
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