Middle East’s oil-reliant economies face 6.6% GDP contraction, says IMF

Dubai: The Middle East’s oil exporting countries are hit the hardest by the double-whammy of the pandemic and the sharp decline in oil prices, the International Monetary Fund (IMF) said. In the latest Regional Economic Outlook, it has forecast a real GDP contraction of 6.6 per cent for these oil exporters.

The IMF’s latest forecasts for the Gulf countries are far more conservative than its April update, when the expectation was for an aggregate negative growth of -3.9 per cent.

“Weak oil demand and large inventories are likely to remain concerns for oil exporters,” said Jihad Azour, Director of the Middle East and Central Asia Department at the IMF. “And while OPEC+ agreements helped stabilize oil prices, these are expected to remain 25 per cent below their 2019 average,”

The oil GDP is expected to contract by 7.7 per cent, reflecting the impact of OPEC+ agreements on production caused by sluggish external and internal oil demand. Non-oil GDP of the exporters is expected to contract by 5.8 per cent this year, mainly reflecting a collapse in the service sector.

Within the GCC, the IMF has forecast a 1.3 per cent real GDP growth for the UAE in 2021 after a 6.6 per cent contraction this year. Saudi Arabia, the largest economy in the GCC, is projected to contract by 5.4 per cent this year and move back into a positive of 3.1 per cent in 2021.

While Bahrain’s growth is forecast at 2.3 per cent next year, its economy could contract by 4.9 per cent this year. For Qatar, the contraction this year is forecast at 4.5 per cent and followed by rebound of 2.5 per cent.

Among the GCC oil exporters, Oman is forecast to remain in recession for the whole of this year and the next, with its GDP forecast to contract by 10 per cent and 0.5 per cent, respectively. The crisis will lead to a significant deterioration in external accounts for GCC in 2020, driven by dramatic drops in oil exports. The current account balance will turn into a deficit of 3.4 per cent of GDP in 2020, relative to a surplus of 3.2 per cent of GDP in 2019.

Oil importers

Declines in trade, tourism and remittances are mostly offsetting the benefits from lower oil prices for the region’s oil importers. These factors, along with confinement measures linked to COVID-19 prevention, continue to depress growth, which is now projected at −1 per cent for 2020, after an expansion of 2.8 per cent in 2019.

All countries in the group except Egypt are expected to see negative growth, with a rebound to 2.2 per cent growth in 2021. Sizable contractions are projected for Morocco and Jordan, by 7 per cent and 5 per cent, driven by severe impacts on tourism and manufacturing, as trading partners’ growth continues to lag and travel remains disrupted.

Policy recommendations

While containing the pandemic is the first priority for all countries, the IMF said it will be key to develop a strategy for securing vaccine supplies once one is available. Fiscal policy should remain supportive and flexible until a safe and durable exit from the crisis is secured.

In the immediate future, containing the pandemic and limiting income losses will remain top priorities. “For those with space in their budgets, such as some oil exporters, broader stimulus packages can boost demand,” said Azour. “In countries with less space, which includes most oil importers, governments should reallocate expenditures to ensure that health, education, and social spending are protected.”