Ongoing geopolitical tension, a drop in oil production and falling foreign direct investment (FDI) will all contribute to a slowdown in growth in the Middle East region, according to the latest forecast from the International Monetary Fund (IMF).
The latest World Economic Outlook report from the IMF and the UN’s Commission for Trade and Development (UNCTAD) states that growth for the Middle East and Central Asia region is expected to reach 2.8% in 2020, 0.1% lower than the forecast made in October.
Growth in the Middle East will recover in 2021 when it is forecast to reach 3.2%. This contrasts with the IMF’s changes to global growth forecasts. While the 2020 figure has been similarly cut by 0.1%, the global forecast for 2021 has also been cut by 0.2% since the October report.
The downgrade for the Middle East is largely a reflection of the revised economic outlook for Saudi Arabia based on reduced oil production, said IMF chief economist Gita Gopinath. The IMF has cut its 2020 growth forecast for the kingdom by 0.3% to 1.9% but has retained the 2.2% growth forecast made in October for 2021.
"We still have to assess how far the regional geopolitical tension goes,” said Gopinath when presenting the report at the World Economic forum in Davos. “By looking at the market response and oil price, the reaction has been muted. We have seen some increase in oil price of $3-$4 a barrel but it all depends on how geopolitical tension takes shape.”
Ongoing geopolitical tension is also likely to affect several economies in the Middle East. As well as the prospect of military conflict in Iran, the IMF also cites social unrest in Iraq and Lebanon and civil conflict in Syria, Yemen and Libya
Meanwhile, UNCTAD figures showed that FDI is down in the region. Although Saudi Arabia enjoyed a 9% increase in overseas investment, there was a 16% drop in the region as a whole, down from $30 billion in 2018 to $25 billion in 2019. Flows to Turkey were especially hit, falling from $13 billion in 2018 to $8.3 billion in 2019.
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