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IMF tempers GCC economic growth forecast

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The IMF expects growth in Kuwait to be the lowest of the GCC states
  • Gulf GDP growth set to fall before rebounding in 2024
  • IMF forecast for GCC has Kuwait with weakest growth at just 0.9%
  • Oil prices have a heavy impact on Gulf states’ economic outlook

Economists believe the outlook remains “slightly optimistic” despite the International Monetary Fund downgrading its forecast for GCC economic growth and oil prices continuing to weigh heavily on future forecasts.

Higher interest rates, rising inflation, increased uncertainty across the banking industry, the ongoing pressures caused by the war in Ukraine, and increased US-China tensions have combined to create a potent mix of global economic turbulence.

The IMF’s latest World Economic Outlook has predicted headline GDP growth in the Gulf will slow this year – as low as 0.9 percent in Kuwait – before most countries pick up the pace in 2024. Saudi will remain at 3.1 percent, while Qatar is expected to experience a further drop to 1.8 percent.

“The main story, as always, is the change in oil assumptions,” said US-based Justin Alexander, director of Khalij Economics and Gulf analyst for GlobalSource Partners.

“The share of oil in Kuwait’s GDP, exports and fiscal revenue, is the largest and so of course it moves the most, up or down, when the price changes."

The IMF forecasts do not include the impact of a recent oil output cut by Opec+ countries that has caused oil prices to spike. It assumes an average 2023 global oil price of $73 per barrel – well below Monday's $84 Brent crude futures price.

IMF chief economist Pierre-Olivier Gourinchas said it was unclear if this level could be sustained.

Construction, Oilfield, OutdoorsPixabay/John R Perry
Oil prices are "the main story" for Gulf GDP predictions, says analyst Justin Alexander

For every 10 percent rise in the price of oil, IMF models show a 0.1 percentage point reduction in growth and a 0.3 percentage point increase in inflation, Gourinchas added, as reported by Reuters.

Earlier this month, Saudi Arabia and other Opec+ oil producers announced further oil output cuts of around 1.16 million barrels per day, which will come into effect from May.

“It is likely that the IMF’s forecast does not include the impact of April’s surprise announcement by Opec+ of a further cut in production and the IMF’s forecast for overall GDP growth are therefore probably slightly optimistic,” said Dubai-based Scott Livermore, chief economist at Oxford Economics. 

Global uncertainty

The IMF’s forecast outside of the GCC remained uncertain. The baseline global forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent this year, before settling at 3 percent in 2024.

Global headline inflation, meanwhile, is set to fall from 8.7 percent in 2022 to 7 percent in 2023 on the back of lower commodity prices.

Vijay Valecha, chief investment officer at Dubai-based Century Financial, said: “Economic activity in the GCC, and more particularly in the UAE, is set to surpass historical trends, buoyed by a healthy pipeline of infrastructure projects, new listings, recovery in tourism, elevated oil prices and growing hydrocarbon output. 

“Global growth forecasts look dimmer on account of macroeconomic headwinds, nevertheless, GCC countries showcase a robust economy, pro-business reforms and strong momentum of economic diversification.”