COVID-19 impact: IMF forecasts negative real GDP growth for GCC in 2020
Global economic growth to take a severe hit this year led by advanced economies
Dubai: In tandem with the global economy slipping into recession following the COVID-19, GCC economies are projected to record overall negative real GDP growth in 2020. This is according to the latest World Economic Outlook report of the International Monetary Fund (IMF).
Ir has forecast global growth at –3.0 per cent in 2020, an outcome far worse than during the 2009 global financial crisis. The forecast is marked down by more than 6 percentage points relative to the October 2019 WEO and January 2020 update - an extraordinary revision over such a short period of time.
Challenging times for GCC
The Middle East and Central Asia region is projected to record -2.8 per cent growth this year. The oil exporters on the region, primarily the GCC, is expected to post an aggregate negative growth of -3.9 per cent.
Saudi Arabia’s growth is forecast at -2.3 per cent, with non-oil GDP contracting by 4 per cent. In the UAE, real GDP growth is forecast to slip to -3.5 per cent real compared to 1.3 per cent recorded last year.
While Qatar’s real GDP is projected to slip to -4.3 per cent in 2020, Oman’s is projected to fall to -2.8 per cent compared to 0.5 per cent last year. Kuwait is relatively better off in terms of growth outlook in the GCC with a projected growth of -1.1 per cent compared to 0.7 per cent in 2019.
Rebound in 2021
Despite thegloomy projections, the IMF has forecast a relatively stronger rebound in the region with the overall real GDP growth 4.6 per cent next year with the UAE, Saudi Arabia and Kuwait bouncing back with 3.3, 2.9 and 3.4 per cent, respectively, in 2021. While Qatar is projected to grow at 5 per cent next year, Oman is forecast to growth by 3 per cent.
Dramatic changes
“The world has changed dramatically in the three months since our last World Economic Outlook update on the global economy,” said Gita Gopinath, Economic Counsellor of the IMF.
“This crisis is like no other. First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis.”
The economist noted that under current circumstances there is a very different role for economic policy. In normal crises, policymakers try to encourage economic activity by stimulating aggregate demand as quickly as possible.
“This time, the crisis is to a large extent the consequence of needed containment measures. This makes stimulating activity more challenging and, at least for the most affected sectors, undesirable,” said Gopinath.
Advanced economies
Growth in the advanced economy group—where several economies are experiencing widespread COVID-19 outbreaks and deploying containment measures—is projected at –6.1 per cent in 2020.
Most economies in thIS group are forecast to contract this year, including the US (–5.9 per cent), Japan (–5.2 per cent), the UK (–6.5 percent), Germany (–7.0 per cent), France (–7.2 per cent), Italy (–9.1 per cent), and Spain (–8.0 per cent).
Although essential to contain the virus, the IMF said lockdowns are extracting a sizable toll on economic activity. Adverse confidence effects are likely to further weigh on economic prospects.
Overall, the group of emerging market and developing economies is projected to contract by 1 per cent in 2020, excluding China. The growth rate for the group is expected to be –2.2 per cent.
The 2020 growth rate for the group excluding China is marked down by 5.8 percentage points relative to the January WEO projection.
China and India
Emerging Asia is projected to be the only region with a positive growth rate of 1 per cent in 2020, albeit more than 5 percentage points below its average in the previous decade. “In China, indicators such as industrial production, retail sales, and fixed asset investment suggest that the contraction in economic activity in the first quarter could have been about 8 per cent year-over-year," the WEO 2020 report said.
Even with a sharp rebound in the remainder of the year and sizable fiscal support, the economy is projected to grow at a subdued 1.2 per cent in 2020.”
Several economies are forecast to grow at modest rates, including India (1.9 per cent) and Indonesia (0.5 per cent), and others are forecast to experience large contractions (Thailand -6.7 per cent).
Latin American economies are expected to grow at -5.2 per cent with Brazil’s growth forecast at -5.3 per cent and Mexico’s at -6.6 per cent.
According to the IMF, there is extreme uncertainty around the strength of the recovery. Some aspects that underpin the rebound may not materialize, and worse global growth outcomes are possible —for example, a deeper contraction in 2020 and a shallower recovery in 2021—depending on the pathway of the pandemic and the severity of the associated economic consequences.