Arab economies expected to grow by 2.8% in 2016

Dubai: Arab economies are expected to grow by 2.8 per cent in 2016 and 3.1 per cent in 2017, the Arab Monetary Fund said in a report on Saturday.

The March edition of the “Arab Economic Outlook” report, which includes projections for the macroeconomic performance of Arab Countries in 2016 and 2017, outlined the challenges expected to face the world economy in the next two years.

The report said that OPEC producers will reach an agreement at the April 17 meeting in Doha to cap oil production, which in conjunction with the decline in oil shale production will strengthen oil prices and bring about a relative stability in the oil market. It is projected that the average price of oil will be $40 (Dh147) per barrel in 2016.

It said the major challenges facing the world economy is the weak performance of emerging markets economies and developing countries as a result of declining world trade and capital flows. The report said the performance of developed economies will benefit from the impact of lower oil prices with a positive spill over effect on some Arab economies, who are their major trading partners.

The report noted the Chinese economy, which is going through structural changes to boost economic growth through a shift from export led to a domestic demand driven growth. While in the Euro Area, there is still need for structural reform in some major economies in order to emulate the positive economic performance witnessed by Spain.

The report said the picture looks more challenging for commodity exporting countries, such as Russia and Brazil, while India is expected to sustain its positive performance in light of the reforms initiated by its government in the last two years.

The US economy is projected to maintain a positive growth rate even as export growth to fell short of expectations this year. The appreciation of the US Dollar seems to be the most significant constraint to US export growth, and a factor behind the increase of debt service on the US denominated debt of emerging and developing economies.

Regarding Economic Growth, the report noted that the macroeconomic performance of Arab countries has been affected in 2015 by the persisting sluggish recovery of the world economy and international trade, as well as lower commodity prices, notably oil, whose prices in 2015 was 49 percent lower than that recorded in the previous year. In addition, internal developments impacted economic growth in some Arab countries. Against this background, a number of Arab oil-exporting countries have increased oil production to partially lessen the impact of falling oil prices on their internal and external balances. Furthermore, some of these countries, especially Gulf Cooperation Council countries (GCC) resorted to maintaining public spending at levels supportive of economic growth with a focus on achieving fiscal sustainability. Arab oil-importing countries economic performance on the other hand, has benefited from several factors for the second consecutive year, notably the gradual improvement of internal conditions, lower oil prices, and from the implementation of structural reforms adopted since 2011. As a result of these developments, economic growth rate of the Arab economies as a group is estimated to reach 3.2 per cent in 2015.

In 2016, the growth rate of Arab countries is expected to be affected by global economic environment and the internal conditions in some Arab countries, as well as the impact of fiscal reforms. However, the rapid pace of growth of Arab oil-importing countries will relatively alleviate part of the negative consequences of the aforementioned factors on the growth of Arab countries as group which is expected to reach 2.8 percent in 2016, before recovering to 3.1 per cent in 2017, amid expectations of partial recovery of oil prices and global economy.

The uneven performance is still to remain between different groups of Arab countries. Arab oil-exporting countries are expected to record low pace of economic growth in 2016 and 2017 compared to Arab-oil importing countries which are expected to grow at a faster pace. The Arab Economic Outlook report, expects the growth rate of Arab oil-exporting countries to reach 2.6 per cent in 2016, and to recover to 3.1 per cent in 2017. Growth rate of GCC is forecasted to be 2.5 per cent in 2016, reflecting mainly the developments in the global oil market and the impact of fiscal corrective measures. In 2017, the growth rate of this group is estimated to recover to 2.6 per cent supported by the likely increase in international oil prices. Other Arab oil-exporting countries are projected to grow by 3.8 per cent in 2016 and 6.7 per cent in 2017, provided that a relative improvement in internal conditions is achieved over the concerned period. Needless to say that expected high growth rates of this group reflect the lower base of growth in the previous years.

Arab oil-importing economies are expected to grow at a high pace of 3.8 per cent in 2016 and 4.3 per cent in 2017, in line with expectations of gradual improvement in domestic conditions and the recovery of key economic sectors due to anticipated better performance of global economy and international trade. Furthermore, these countries would also benefit from the implementation of economic reforms aiming at increasing productivity and enhancing competitiveness.