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IMF raises GCC growth outlook to 6.4%; warns Ukraine war to hit Mena’s poor nations

Oil prices, according to the forecast, will average $106.83 per barrel in 2022 and $92.63 per barrel in 2023. The projections — an average of the Brent, Dubai, and WTI benchmarks — are well above fiscal breakeven prices for all regional oil exporters, according to the IMF

The war in Ukraine has significantly impacted the Middle East and North Africa, with big oil exporters in the region standing to benefit from a windfall due to higher oil and gas prices as the conflict deals a heavy blow to low-income countries, the IMF said on Wednesday.

In its latest economic outlook for the Mena region, the IMF said economic growth in the oil-producing GCC countries would accelerate to 6.4 per cent in 2022, from 2.7 per cent in 2021. This represents a 2.2 percentage point hike compared with the IMF’s previous forecast for 2022, mainly due to an upwards revision to the GDP growth estimate for Saudi Arabia.

However, recovery in the Mena region as such is expected to be uneven, mirroring the diversity of its economies. The forecast sees the region as a whole growing at 5.0 per cent in 2022, versus 5.8 per cent in 2021. The 2022 forecast has been raised by 0.9 percentage points compared with the October projection, reflecting an improved outlook for oil exporters and better-than-expected growth in the first half of the fiscal year 2022 for Egypt, the IMF said.

Oil prices, according to the forecast, will average $106.83 per barrel in 2022 and $92.63 per barrel in 2023. The projections — an average of the Brent, Dubai, and WTI benchmarks — are well above fiscal breakeven prices for all regional oil exporters, according to the IMF. The fiscal breakeven is the oil price required for a balanced state budget.

The predicted growth masks the disparities between the region’s 22 countries, which range from major oil exporters to nations wracked by war and others that depend heavily on wheat imports as well as hydrocarbon imports, the Washington-based institution said.

Inflation is expected to peak at 3.1pc in Mideast Gulf countries in 2022, an increase from 2.2pc inflation in 2021. But prospects will vary across oil exporters in the Middle East

“To bolster a sustainable, inclusive, and greener recovery, countries should prioritise measures that tackle some of their long-standing structural issues, such as enhancing the efficiency of government expenditure and revenue collection capacity, promoting private-sector activity, reducing informality and youth unemployment, and addressing climate change,” the IMF said.

But despite these risks, the IMF suggests that major oil-exporting countries in the Mena region face brighter prospects “as the windfall from higher oil and gas prices and successful vaccination campaigns are expected to improve fiscal and external balances and support recovery”.

Oil revenues in the region are projected to increase by an average of 5.3 percentage points of gross domestic product (GDP) this year compared to 2021, reaching a total of $818 b billion compared with the IMF’s previous outlook in October. The oil windfall will help rebuild fiscal buffers and cushion the effect of the war in Ukraine, but Mena oil exporters will be exposed to higher volatility, the IMF said

“Prior to the war in Ukraine, the economy in the region was showing strong recovery... the only caveat to that is inflation started to increase in 2021 and remained high,” said Jihad Azour, IMF director for the Middle East and Central Asia.

The report said inflation in Mena surged to 14.8 per cent in 2021 and is projected to remain elevated at 13.9 per cent this year, largely due to higher food and energy prices.

The IMF official said low-income countries face increased pressure due to lower levels of food security and heavy reliance on imports from Russia and Ukraine, both major wheat producers.

Sudan and war-torn Yemen are among those particularly hard hit.

Emerging markets and middle-income countries, including Egypt, Jordan and Morocco, are forecast to register GDP growth of 4.4 per cent, on average. The IMF warned that emerging markets and middle-income countries face worsening prospects, given their governments’ limited capacity to cope with inflation as geopolitical uncertainties persist.

— issacjohn@khaleejtimes.com