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Today’s higher oil prices may have helped Arab Gulf economies to grow again, but risks remain with economies still vulnerable to sharp oil price movements, the International Monetary Fund (IMF) said in its November regional economic outlook on Tuesday.
Another risk to Arab Gulf economies stem from possible delays in much-needed diversification reforms due to complacency with the higher oil prices.
The combined economies in the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—are expected to grow at 2.4 percent this year and 3 percent next year, after they contracted by 0.4 percent last year, the IMF said.
Growth in non-GCC oil exporting nations, on the other hand, is forecast to slow to 0.3 percent this year from 3 percent in 2017, and to pick up slightly to 0.9 percent in 2019, largely due to the impact of the renewed U.S. sanctions on Iran. The return of the sanctions is “likely to reduce Iranian oil production and exports significantly over the next two years at least,” the IMF said.
While the fund acknowledged that in several countries, including in Saudi Arabia and the UAE, higher oil revenues have more than offset increases in public spending, “there is a tangible risk that the commitment to implement key fiscal measures and structural reforms will weaken amid higher oil prices.”
“Also, any delays to reforms that would facilitate a greater role for the private sector in the economy—for example, through privatization in Qatar, Saudi Arabia, and the UAE—could curtail economic diversification efforts,” the IMF warned.
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The overall uncertainty about where oil prices will be heading and the risk of downward pressure on oil from trade tensions continue to be “significant sources of vulnerability” for oil exporters in the Middle East and North Africa (MENA) region.
According to IMF’s latest projections, Saudi Arabia, the biggest oil producer in the region and the leader of OPEC, will see its economy rising 2.2 percent in 2018 and 2.4 percent in 2019, compared to a 0.9-percent contraction in 2017. The UAE’s real GDP growth will be 2.9 percent this year and 3.7 percent next year, accelerating from 0.8 percent last year. Iran, however, is expected to have its economy shrink by 1.5 percent in 2018 and by another 3.6 percent in 2019, from 3.7-percent growth in 2017, as the sanctions undercut its near-term trade and growth prospects.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.