IMF raises Middle East growth forecast

10 April 2008

Economists are warning that the Middle East is still at risk from the global downturn despite the IMF raising its forecasts for economic growth in the region.

The IMF has increased its growth forecast for the Middle East in 2008 by 0.2 basis points to 6.1 per cent, despite predicting that world growth would slow due to the financial crisis.

In its latest World Economic Outlook report the IMF said that global financial turmoil was having little direct effect on the Middle East, although the weakness of the US dollar was making life harder for policymakers in the region.

However, responding to the report, Mary Nicola, economist for Standard Chartered, says: “The Middle East is insulated, not isolated from the global economy.”

In contrast to the IMF’s report, Standard Chartered has lowered its growth forecast for Middle East countries in the wake of the turmoil in credit markets.

The IMF report says the short-term outlook for the region is positive. Growth is projected to be more than 6 per cent in 2008 and 2009 and the current account surplus is expected to remain large.

However, it says inflation is likely to remain uncomfortably high in the short-term.

Region-wide inflation rose from 3.4 per cent in 2006 to 10.1 per cent in 2007. It is running at close to 20 per cent in Iran, 14 per cent in Qatar, and above 9 per cent in the UAE.

Nicola warns that inflation is unlikely to decrease soon while money supply is high and the dollar pegs continue. “As long as the status quo continues we will only see inflation increase,” she says.

The IMF report warns that any large cut in US interest rates could stimulate domestic demand further in the region, leading to higher inflation.

A wider global slowdown leading to a drop in oil prices as well as regional geopolitical uncertainties are the main short-term risks for the region.

The IMF says that, to boost their longer-term economic health, regional governments should reduce barriers to trade, simplify tax systems, and enhance the transparency of legal and administrative systems.

Middle East economies

Real GDPConsumer prices

Current Account balance*

Saudi Arabia4.
Middle East region5.

GDP = Gross domestic product
* per centage of GDP
Source: IMF

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