Heightened volatility in oil prices as well as political instability will combine to pressure economic growth in the Middle East, the International Monetary Fund warned in the latest edition of its Regional Economic Outlook Update for the region.
Inflation in the Middle East will remain high, at about 10 percent, according to the report, with economic growth declining from some 2 percent last year to 1.5 percent this year. Yet these are the average figures. In reality, the countries in the Middle East face rather different challenges.
Iran is the country that will suffer the most from the trends the IMF talks about because of the U.S. sanctions. According to Jihad Azour, the fund’s department director for the Middle East and Central Asia, the recession already gripping Iran will deepen to 6 percent this year from 4 percent in 2018. Since Tehran has signaled it has no intention to give the U.S. what it wants—a new nuclear deal as Washington has stated—chances are this scenario is the one we will see play out in one of the Middle East’s largest countries.
Yet even sanction-free U.S. allies such as Saudi Arabia and the United Arab Emirates are not going to have it too easy this year, if the IMF’s analysts are right. The Saudi economy will grow more slowly this year, with the growth rate declining from 2.2 percent in 2018 to 1.8 percent. Related: Oil Soars On Venezuela Coup Attempt
On a wider scale, the members of the Gulf Economic Council, which include, besides Saudi Arabia, also the UAE, Qatar, Bahrain, Oman, and Kuwait, will see GDP growth relatively unchanged at an average 2 percent but they would need to double down on their diversification efforts. The six countries need to create about a million new jobs annually over the next five years at least in order to maintain unemployment rates where they are, the IMF said.
However, the diversification efforts are beginning to pay off even if they are burdening state budgets: the IMF said non-oil revenues for these countries will rise moderately this year, although this will be accompanied by an increase in budget deficits as well.
The news isn’t good for the energy importing countries in the region. Egypt, Lebanon, Jordan and others in this club, will also see slower economic growth and higher inflation than the rich oil boys’ club, although the average inflation rate will remain relatively unchanged on 2018.
Besides the overall trend of slowing economic growth, which echoes the slowdown on a global scale, the Middle East and North African countries have another reason for worry: political unrests in Algeria, Sudan, Libya, and Yemen, along with the simmering tension in the Middle East, always there and ready to flare up.
Investors have been traditionally wary of the political dynamics in the region, but recent events are likely to make them even warier and less willing to put their money there regardless of ambitious economic diversification plans. “This may feed back into further oil price volatility and regional uncertainty,” the report’s authors said.
By Irina Slav for Oilprice.com
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