The IMF has downgraded sharply its forecast for regional economic growth due to lower-than-expected oil prices and a worsening outlook for the global economy.

In its latest regional economic outlook report published on 28 October, the Washington-based fund said that it estimated that real GDP growth for the Middle East, North Africa and Pakistan (Menap) region would be 0.5 per cent in 2019, down from the 1.5 per cent expansion in the regional economy that it forecast in its previous report published in April.

GCC economic growth is projected by the fund to be 0.7 per cent in 2019, down from a forecast of 2.1 per cent growth made in April.

In 2020, real GDP growth in the Menap region is then expected to recover to 2.7 per cent, which is down from April’s projection of 3.2 per cent growth, while the GCC is expected to rise to 2.5 per cent, down from 2.8 per cent in April’s figures.

Aggregated real GDP growth, % (interactive)

The report’s authors say that the downgrade in regional growth expectations are the result of oil prices that are likely to remain lower than expected for longer than expected, and a slowdown in global trade.

“The global fractures currently taking place are making their way through the region,” said IMF Middle East director Jihad Azour. “And the economies of both oil-exporting and oil-importing countries are being increasingly affected by the challenges that the global economy is facing.”

The region’s oil producers are feeling the biggest impact of these pressures, said Azour, with the economies of the region ‘s oil exporters forecast by the IMF to shrink by 1.3 per cent in 2019, down from growth of 0.4 per cent forecast six months ago.

Growth in Saudi Arabia, the region’s biggest economy, is forecast to be 0.2 per cent in 2019, down from a forecast growth of 1.8 per cent made six months ago, but 2.2 per cent in 2020, up slightly from a forecast of 2.1 per cent in April.

The UAE economy is projected by the fund to expand by 1.6 per cent in real terms in 2019, down from a 2.8 per cent growth forecast in April, before rising to 2.5 per cent in 2020, down from 3.3 per cent in the previous projection.

The worst hit countries are Iran and Libya, where international economic sanctions and civil war are expected to see contractions of 9.5 per cent and 19.1 per cent respectively.

The expected combined GDP growth for the region’s oil importing countries remains unchanged from April at 3.6 per cent in 2019.

Real GDP growth by country (interactive)

Unstable oil prices

A slowdown in global trade and continuing weakness in the world’s energy markets are the biggest factors in the downgrade in regional growth expectations, said Azour, who noted: “The oil price has become more volatile, and we are seeing that even with accelerating shocks, we are not seeing the oil price changing its patterns.”

The IMF has based its latest projections on the assumption of an average oil price of $61.8 a barrel in 2019 and $57.9 a barrel in 2020.

The weakness in oil prices is the result of rising US shale oil inventories and falling Asian demand, said Azour, together with recent declines in world trade.

“In the beginning, the direct impact of the trade war [between the US and China] was hidden to the region,” said Azour. “But [now] it is [coming] through.”

The slump in regional growth is significantly worse than the slowdown in global growth, which was revised to 3 per cent for 2019, down 0.3 per cent on the April forecast.

Regional growth lags even further behind the projection for emerging market growth, which is forecast to be 3.9 per cent in 2019, down 0.4 per cent on April’s projection.

Population growth

Azour warned that the region’s oil importing economies are facing mounting social pressures as a result of weak job growth, which has led to rising youth unemployment, growing inequality and, since 2017, rising social unrest.

In many countries, the influx of Syrian refugees and economic migrants has exacerbated the problem, which Azour described as “one of the most salient to affect the region”.

On the risk of social unrest, Azour added: “This is something which we highlighted six months ago, that we must be careful about socio-political events, and it could erupt in several countries.”