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IMF Cuts Saudi Arabia’s Growth Outlook Due To OPEC+ Oil Cuts

Saudi Arabia’s economy is expected to grow by 1.9 percent this year, the International Monetary Fund (IMF) said on Monday, revising down its forecast of 2.2-percent growth from just three months ago, due to expected lower Saudi oil production as the Kingdom has pledged to overcomply with the OPEC+ oil production cuts.

In its January update of the World Economic Outlook (WEO) from October, the IMF cut on Monday its economic growth projections for the global economy and that in the Middle East and Central Asia region. Economic growth in the Middle East and Central Asia is now seen at 2.8 percent this year, down by 0.1 percentage point from the October estimate.

In the October forecasts, the IMF had expected Saudi Arabia’s real GDP growth to pick up to 2.2 percent in 2020, after sluggish 0.2 percent growth in 2019. Back then, the IMF said that Saudi Arabia would need oil prices at US$86.50 in 2019 and US$83.60 in 2020 in order to balance its budget.

“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,” the IMF said today.

At the OPEC+ meeting in December, OPEC and its partners decided to deepen the current cuts by 500,000 bpd in the first quarter of 2020, when demand is expected at its weakest for 2020. This brings total production reductions at 1.7 million bpd—that is if rogue members fall in line with their quotas.

Related: Oil Is The Only Way Back Up For Venezuela

Considering the pledge from OPEC’s largest producer and de facto leader Saudi Arabia that it would continue to significantly overcomply with its share of the cuts, the total OPEC+ cuts could be as high as 2.1 million bpd, OPEC said.

Signs of tentative stabilization of global economic growth have started to emerge, but risks continue to be skewed to the downside, although not as adverse as in October, the IMF said in its January update and warned about disruptions to global oil supply.

“Rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment, and weaken already tentative business investment,” the IMF said. 

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By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on January 21 2020 said:
    The key to the growth of Saudi Arabia’s economy and the global economy is the continued de-escalation of the trade war.

    If the de-escalation gains momentum in 2020, the global economy and Saudi Arabia’ could be projected to grow at 3.1% and 2.2% respectively. A continued de-escalation will enhance global demand for oil and accelerate the depletion of the glut in the market thus enabling Saudi Arabia to earn more revenues from oil exports and thus reducing its budget deficit.

    Saudi Arabia’s over-compliance with OPEC+ production cuts in an environment of growing economy should be a positive factor for its economy since it puts a solid floor under oil prices contrary to what the International Monetary Fund (IMF) is saying. And the proof is that if Saudi Arabia relaxes its compliance of the OPEC+ cuts, it will mean producing more crude and that will depress oil prices thus impacting adversely on its economy.

    So the IMF should think more carefully before rushing to make flawed judgements. Moreover, projections by the IMF and US Ratings Agencies are mostly politically-motivated and should be ignored.

    If tension between Iran and the United States escalates into a military conflict, then the whole global economy will be affected including the Saudi economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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