IMF slashes growth forecasts in the Middle East again amid an ‘unusually high level of uncertainty’

Oil & Gas

A tourist walks through the terminal 3 of Dubai airport in the United Arab Emirates on July 8, 2020, as the country reopened its doors to international visitors in the hope of reviving its tourism industry after a nearly four-month closure.

Giuseppe Cacace | AFP | Getty Images

The International Monetary Fund revised its growth forecasts for the Middle East and North Africa downward again amid an “unusually high level of uncertainty,” according to its latest regional economic report.

It now expects MENA economies to contract 5.7% in 2020. In April, it predicted that the region would shrink 3.3% for the year.

“The unusually high level of uncertainty regarding the length of the pandemic and its impact on firm closures, the resulting downside risks (including social unrest and political instability), and potential renewed volatility in global oil markets dominate the outlook,” the report said.

Jihad Azour, director of the IMF’s Middle East and Central Asia department, said the region experienced “twin shocks” with the coronavirus pandemic and depressed oil prices. 

“Managing this crisis had a big impact and a toll on the economy and this is why we had to revise our growth rates downward this year,” he told CNBC’s Hadley Gamble on Sunday.

“I would say (the downgrade is) in line with most of the countries in the world, but in our part of the world, with the diversity of the economies and the linkages that exist between oil exporting and oil importing, this is going to be a challenge going forward,” he said.

The IMF also lowered its expectations for the global economy last month, and now sees a contraction of 4.9% in global gross domestic product in 2020.

The oil factor

Within the region, oil exporters are projected to suffer more than importers, the fund said.

GDP growth for MENA, Afghanistan and Pakistan oil exporters is expected to fall to negative 7.3%, compared to a 1.1% contraction for oil importers. That reflects the “double whammy” from oil price fluctuations and Covid-19 lockdowns.

For oil importers, the benefits from lower oil prices are “mostly being offset by hampered trade, tourism, and remittances” as well as tighter global financial conditions and spillovers on domestic credit markets, the IMF said in its report.

It also said growth revisions appeared to be linked to lockdowns and mobility. Countries including Saudi Arabia and the United Arab Emirates, which had more stringent movement restrictions, saw greater GDP revisions.

S&P Global predicted that Dubai, which relies on industries such as tourism, hospitality and retail, could see its economy shrink 11% this year. The city was under a strict 24-hour lockdown at one point, but reopened to tourists last week after nearly four months of border closures. 

Asked if further revisions to forecasts are possible, IMF’s Azour said that depends on factors such as the strength of the economic recovery, whether a second outbreak of the coronavirus could emerge and how oil prices behave.

“What one could say is that high frequency indicators are showing that the economies are recovering, and recovering gradually,” he said.

“Now it’s important that their policies need to be adapted in order to accompany this recovery, while at the same time, keeping a strong eye on managing the crisis,” he added.

— CNBC’s Emma Graham, Natasha Turak and Silvia Amaro contributed to this report.

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