The International Monetary Fund (IMF) on Monday cut the growth outlook for the Middle East, North Africa, Afghanistan and Pakistan (Menaap) and the world economy for 2019 due to weaker oil prices and the trade war between the US and China.
The IMF forecast that growth will remain subdued for the region and slashed its 2019 forecast for Menaap by 0.3 per cent to 2.4 per cent. But growth will recover next year and the region is projected to grow 3 per cent. Next year's growth forecast remained unchanged.
"Multiple factors weigh on the region's outlook, including weak oil output growth, which offsets an expected pickup in non-oil activity in Saudi Arabia, tightening financing conditions in Pakistan, US sanctions on Iran and geopolitical tensions," the fund said in its World Economic Outlook Update released on Monday at the World Economic Forum in Davos.
It also slashed the 2019 growth outlook for Saudi Arabia, the region's largest economy, to 1.8 per cent, which is 0.6 per cent less than its previous forecast released in October last year. But it hiked the kingdom's next year growth outlook by 0.2 per cent from its previous forecast to 2.1 per cent.
Gian Maria Milesi-Ferretti, deputy director in the Research Department of the IMF, blamed lower oil production following Opec's December 2018 meeting for lower growth for Saudi Arabia and other oil-exporting countries.
IMF Holds a Grim Outlook on Global Economic Growth
IMF Optimistic Over UAE's Growth Outlook Citing High Oil Prices
"Slowdown in the GCC countries will see lower remittances to countries that send a lot of workers to the region. While countries like Pakistan and Bangladesh will get lower remittances, but they would benefit from reduced outlays on oil," Milesi-Ferretti said.
In October 2018, the IMF 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. But earlier in April 2018, the IMF had cut UAE's real GDP growth forecast for to 2 per cent for 2018 and 3 per cent for the next year.
Khatija Haque, head of Mena Research at Emirates NBD, said the regional outlook for 2019 is cautiously optimistic, against a backdrop of slowing global growth and heightened geopolitical risks globally.
"We expect average growth of 2.5 per cent in the GCC this year, with the UAE and Qatar likely to see faster growth than in 2018. We expect Saudi Arabia's economy to expand two per cent this year, slower than the government's estimate of 2.3 per cent growth in 2018," she said in the latest research note.
"In 2019, we expect growth to accelerate to 3.1 per cent down from a previous forecast of 3.6 per cent, on higher average oil production relative to 2018 even after Opec's production cuts come into effect) and faster non-oil sector growth. The latter will be supported by increased government spending (both by Abu Dhabi and through the Federal Government budget), and preparations for Expo 2020 Dubai, which are targeted for completion by end Q3 2019," she said in the note.
Emirates NBD has revised oil forecasts for 2019 lower to an average of $65 per barrel for Brent from more than $70.
Pankaj Gupta, co-founder and CEO, Gulf Islamic Investments, UAE, said 2019 global growth has been hindered as China economy cools, investments weaken and consumer confidence falters, leaving the 218 growth the weakest in 28 years. Moreover, US-China trade and rejection of Brexit unrivalled more speculations within the market.
Due to these global factors, it is evident that caution is taken when predicting growth in Mena region.
"I believe 2019 should be viewed as a year of progress for Mena as economies are anticipated to lead stronger growth supported by easing fiscal adjustment and infrastructure investment such as the Expo 2020," he said, adding that "private sector sentiments are moving in the right direction while the government is charting master plans for other reforms to promote non-oil sector activity."
Furthermore, growth among some oil importers in the region is anticipated to improve as business and consumer confidence are boosted by reforms and as external demand improves, he added.
India fastest growing in 2019-20
According to the IMF, global economy is projected to grow at 3.5 per cent in 2019 and 3.6 per cent in 2020, 0.2 and 0.1 percentage point below last October's projections.
The fund cut advanced economies projections by 0.1 per cent to 2.0 per cent for 2019 with Germany, Italy and euro-area growth predictions revised down by 0.6 per cent, 0.4 per cent and 0.3 per cent - respectively. While the growth outlook for China remained unchanged for 2019-20 but India's outlook was raised slightly by 0.1 per cent for 2019. Data from the IMF revealed that India will be the fastest growing economy among the major economies of the world, growing at 7.5 per cent in 2019 and even faster at 7.7 per cent in 2020.
While address the press conference in Davos, Christine Lagarde, managing director, IMF, said the global economy is growing more slowly than expected and facing significantly higher risks.
"After 2 years of solid expansion, the world economy is growing more slowly than expected and risk are rising. But even as the economy continues to move ahead, it is facing significantly higher risks and some of them are related to policies. These risk are increasingly intertwined. We believe the risks to downward correction are rising," she said.
However, she ruled that there is any recession around the world.
Gita Gopinath, chief economist, IMF, said political risks are very important and leaders must immediately take action to prevent such risk.
"Trade tensions and a no-deal Brexit are significant risks to the global economy," she added.