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A logo is seen outside the headquarters of the International Monetary Fund (IMF) in Washington, DC. Image Credit: AFP

Dubai: The UAE economy will have a 1.3 per cent real GDP growth in 2021 following a 6.6 per cent contraction this year, the IMF says in its latest World Economic Outlook Report. The IMF’s forecast is far more conservative than many other recent ones.

Earlier on Tuesday, the Institute of International Finance (IIF), a global association of banks and financial institutions, forecast a 3.1 per cent GDP growth for the UAE in 2021 after a 5.7 per cent contraction this year. The IMF has attributed the conservative forecasts for the Middle East and Central Asia region to the impact of low oil prices, COVID-19 geopolitical issues and conflicts in the region.

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Gulf outlook

Saudi Arabia, the largest economy in the GCC, is projected to contract 5.4 per cent this year and move to a rowth of 3.1 per cent in 2021. While Bahrain’s growth is forecast at 2.3 per cent in 2021, the economy is projected to contract by 4.9 per cent this year. For Qatar, contraction this year is forecast at 4.5 per cent and a projected rebound of 2.5 per cent.

Among GCC oil exporters, Oman is forecast to remain in recession for the whole of 2020 and 2021 with GDP contracting by 10- and 0.5 per cent, respectively, for this year and the next.

Global economy

The IMF sees a partial recovery for the global economy in 2021 from a deep recession in 2020. Growth is projected at minus 4.4 per cent in 2020, 0.8 percentage point above the June 2020 WEO Update.

The stronger projection for 2020 compared with the June update reflects the net effect of two competing factors: the upward impetus from better-than-anticipated second quarter GDP outturns (mostly in advanced economies) versus the down draft from persistent social distancing and stalled re-openings in the second-half of the year.

“We are projecting a somewhat less severe, though still deep, recession in 2020, relative to our June forecast,” said Gita Gopinath, Economic Counsellor and Director of Research of the IMF. “The revision is driven by second quarter GDP outturns, which were not as negative as we had projected; China’s return to growth, which was stronger than expected; and signs of a more rapid recovery in the third quarter,”

Advanced economies

Growth in the advanced economy group is projected at –5.8 per cent in 2020, 2.3 percentage points stronger than in the June update. The US economy is projected to contract by 4.3 per cent, before growing at 3.1 per cent in 2021.

A deeper contraction of 8.3 pe rcent is projected for the euro area, reflecting a sharper downturn than in the US in the first-half of the year. The growth bounce-back of 5.2 per cent projected for 2021 is accordingly stronger from a lower base.

Emerging economies

For emerging marketa and developing economies, growth is forecast at –3.3 per cent this year, 0.2 percentage point weaker than in the June forecast, and strengthening to 6 per cent in 2021.

Prospects for China are much stronger than for most other countries in this group, with the economy growing by about 10 per cent over 2020–21. Activity normalized faster than expected after most of the country reopened in early April, and second quarter GDP registered a positive surprise on the back of strong policy support and resilient exports.

For many other emerging market and developing economies, prospects continue to remain precarious. Large economies, such as India and Indonesia, continue to try to bring the pandemic under control. Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter.

As a result, the economy is projected to contract by 10.3 per cent in 2020, before rebounding by 8.8 per cent in 2021.