Low oil weighs on Middle East growth

Dubai - Region to see modest expansion this year amid uncertainty.

Gulf states are expected to see modest growth this year due to rising uncertainty and bearish oil market, the International Monetary Fund (IMF) said on Wednesday.
In its latest regional assessment for the Middle East, North Africa, Afghanistan and Pakistan (Menap), the fund said the GCC (Gulf Cooperation Council) economies would grow at 3.3 per cent this year as against 3.4 per cent in 2014.
The growth may slip to 2.8 per cent in 2016 as the region's oil exporters have lost $360 billion in revenues this year due to record low oil prices. It urged the GCC economies to adjust to the new reality of oil prices, which are expected to remain low for some time.
"Achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for more than 10 million people anticipated to be looking for work by 2020 in the region's oil-exporting countries," IMF Middle East and Central Asia Department director Masood Ahmed said at the report's launch at Dubai International Financial Centre.

The report examines the impact of conflicts and low oil prices on the region's oil-exporting and oil-importing countries. It also examined the impact of Iran's nuclear deal with world powers on its economy and international trade in general and oil market in particular.
The IMF report, which forecasts 2.5 per cent growth for Middle East in 2015, said economic activity could pick up to four per cent next year if regional conflicts ease and sanctions on Iran are alleviated.
Ahmed said two key factors - uncertainty due to deepening crises and low oil prices - are shaping the region's outlook.
Elaborating, he said conflicts are spreading and deepening, exacting a horrendous human toll on the region as well as a significant impact on economic activity.
"Syria's GDP has declined by 45-60 per cent since the start of the conflict, while Yemen's has dropped by nearly 30 per cent in the past year. These conflicts have given rise to large numbers of displaced people and refugees, on a scale not seen since the early 1990s," Ahmed said.
In countries hosting refugees, Ahmed said, economic, social and political pressures have risen sharply. And the conflicts are having other cross-border spillover effects including setbacks to trade and tourism, worsening security, and deteriorating investor confidence.
"For the region's oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360 billion this year alone," Ahmed told reporters.
He said the near-term outlook for the Menap region is dominated by geopolitical and oil price developments. "Regional uncertainties arising from the complex conflicts in Iraq, Syria, Yemen, and Libya are weighing on confidence. Low oil prices are also taking a toll on economic activity in the oil-exporting countries."
Ahmed called for a 'concerted effort' by the international community to help refugees and stabilise the affected countries, while providing additional financing to countries hosting large numbers of refugees.
He said the budgets of the GCC members are facing an average deficit of 13 per cent of GDP this year due to slump in oil prices that remain in place for the foreseeable future. He said the combined budget deficit of the GCC nations will exceed $1 trillion in next five years as oil prices dropped to below $50 a barrel from $115 in June 2014 due to over supply and weak demand.
Over the medium term, he said putting fiscal positions on a stronger footing will require efforts to streamline spending, reform energy pricing, and broaden non-oil revenue sources.
"The key to resolving the challenge of absorbing millions of new job-market entrants expected over the next few years lies in accelerating economic diversification by creating incentives for private firms

• MENA