GCC economies slow down in tandem with global trend

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DUBAI: GCC economies are projected to slow down in 2019 in tandem with slower growth forecasts for most global economies according to the latest World Economic Outlook (WEO) report from the International Monetary Fund (IMF). Growth in the Middle East and Central Asia region is expected to be 0.9 per cent in 2019, 0.4 percentage point lower than in the April 2019 WEO, largely due to the downward forecast revision for Iran (owing to the effect of tighter US sanctions) and Saudi Arabia.

In the GCC, with the exception of Bahrain and Qatar, all economies are projected post slower real GDP growth compared to 2018. While Bahrain is expected to grow at 2 per cent this year compared to 1.8 per cent last year, the UAE is expected to maintain growth at 1.6 per cent compared to an estimated 1.8 per cent growth last year.

The region’s largest economy, Saudi Arabia is projected to report a drastic slowdown in growth to 0.2 per cent compared to 2.4 per cent in 2018. “While non-oil growth is expected to strengthen in 2019 on higher government spending and confidence, oil GDP in Saudi Arabia is projected to decline against the backdrop of the extension of the Opec+ agreement and a generally weak global oil market,” the IMF report said

According to the IMF, at this stage the impact on the growth of the recent attacks on Saudi Arabia’s oil facilities is difficult to gauge but add uncertainty to the near-term outlook. The world economy is projected to grow at 3 per cent in 2019 a significant drop from 201718 for emerging market and developing economies as well as advanced economies before recovering to 3.4 per cent in 2020.

Although the IMF report does not warn of an impending global recession, it observes that a notable feature of the sluggish growth in 2019 is the sharp and geographically the broad-based slowdown in manufacturing and global trade. The global growth the pattern reflects that GDP growth is expected to moderate into 2020 and beyond for a group of systemic economies comprising the United States, Euro area, China, and Japan — which together accounts for close to half of global GDP.

“The global economy is in a synchronised slowdown, with growth for 2019 downgraded again — to 3 per cent — its slowest pace since the global financial crisis. This is a serious climb down from 3.8 per cent in 2017 when the world was in a synchronised upswing,” Gita Gopinath, Economic Counsellor and Director of Research wrote in the preface of the WEO.

This subdued growth is a consequence of rising trade barriers; elevated uncertainty surrounding trade and geopolitics; idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and ageing demographics in advanced economies. Leading advanced economies continue to slow this year with the US growth projected to slow down to 2.5 per cent in 2019 from 3 per cent in 2018 with the economy projected to slow down further to 2.3 per cent in 2020.

For the US, trade-related uncertainty has had negative effects on investment, but employment and consumption continue to be robust, buoyed also by policy stimulus. In the Euro area, growth has been downgraded due to weak exports, while Brexit-related uncertainty continues to weaken growth in the UK. Large emerging market economies such as Brazil, Mexico, Russia and Saudi Arabia are projected to grow in 2019 about 1 per cent or less, considerably below their historical averages.

India’s 2019 GDP growth is revised downwards to 6.1 per cent compared to 6.8 per cent in 2019. In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the non-bank financial sector that weighed on demand. China’s growth is projected at 6.1 per cent in 2019 compared to 6.6 per cent last year. In China, the growth downgrade reflects not only escalating tariffs but also slowing domestic demand following needed measures to rein in debt.

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