The global economic outlook looks more downbeat as major world economies struggle with low real GDP growth. However, prospects for the MENA region have strengthened due to higher oil prices and increased government spending, according to a QNB Group review of the IMF’s October World Economic Outlook, released on the occasion of the annual IMF meeting held this year in Tokyo.
Global real GDP growth has been revised downwards to 3.3% in 2012 and to 3.6% in 2013. The growth outlook for the global economy has deteriorated as the recovery in the 35 advanced economies has remained weaker than expected. As advanced economies account for 51.1% of global GDP, this has caused a major drag on the world economy.
GDP growth for the advanced economies has been cut by 0.5% to 1.5% in 2013. The main factors holding growth back in advanced economies is the implementation of austere fiscal policies to reduce deficits. The IMF has warned these austere measures could impact sustainable long term growth. Another key factor is the weak loan growth disbursed through the banking system due to risk averseness, despite an accommodative monetary policy that supports growth.
The US, the world’s largest economy, is now forecast to a reduced growth of 2.1% in 2013 due to both external and domestic risks. External risks are mainly posed by spillovers from the Eurozone debt, while domestic risks emerge from a much larger fiscal contraction, as budget cuts and end of tax holidays come into play in early 2013. A deterioration of the US economy has a wide ranging impact on global investor confidence and raises the risk aversion at a global level.
The second engine for global growth comes from developing Asia, which accounts for 25.0% of global GDP. The growth forecast for developing Asia has also been reduced by 0.3% to 7.2% in 2013 owing to weaker external demand and concerns on domestic demand in China.
Meanwhile, growth prospects for the MENA region have strengthened with a forecast growth of 5.3% in 2012 and 3.6% in 2013.
Growth in the MENA region is two-dimensional; with a clear distinction between oil exporters and importers. The gap in the growth outlook between them has widened. While growth prospects for oil exporters have improved to 6.6% in 2012 (up from 4.8% in the April 2012 forecast), the prospects for oil importers have substantially declined to 1.2% in 2012 (down from 2.2% in the April 2012 forecast). Higher oil prices and increased government spending have been the key differentiating factor that has brightened the growth prospects for oil exporting countries. The outlook for oil importing countries remains subdued as political turmoil and change have led to declining economic activity.
Looking at oil prices based on the futures market, the IMF has revised downwards its oil price assumptions to US$106.2/b in 2012 and US$105.1/b in 2013, from US$114.7/b and US$110.0/b respectively in the April 2012 forecast. Supply increases from Saudi Arabia and the US and the worsening outlook for global growth, and hence oil demand, have led to lower expectations for oil prices. Further downside risks to oil prices are posed through weak demand from Asia and Europe according to QNB Group.
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