Growth in emerging markets to slow down, says IMF

Growth in emerging markets and developing economies is expected to be slower this year, according to the IMF’s latest global outlook.

The rate of expansion will dip to 4.2 per cent compared with 4.6 per cent a year ago, the IMF said on Thursday, citing lower commodity prices, tighter external financial conditions, especially for oil exporting countries, and the rebalancing in China.

Another factor for the forecast for a sluggish growth rate is “the economic distress related to geopolitical factors – particularly in the Commonwealth of Independent States and some countries in the Middle East and North Africa”, it said.

A risk to the forecast is “greater difficulties in China’s transition to a new growth model, as illustrated by the recent financial market turbulence”, the IMF said. About $3.9 trillion has been wiped off the market value of Chinese equities over the last month.

Looking ahead into 2016, the IMF predicts a growth rate of 4.7 per cent for emerging markets and developing economies, due to “an improvement in economic conditions in some distressed economies such as Russia and other countries in the Middle East and North Africa”.

Ziad Waleed, an economist at Cairo-based investment bank Beltone Financial, said: “In the Middle East, security issues will remain a challenge for economic growth, especially in countries like Libya, Iraq and the Levant.

“For the Gulf region, economic growth is tied to oil. Some 85 per cent of Saudi exports, for instance, are oil related, compared to 90 per cent for Qatar. The UAE is less dependent on oil, with [oil making up] only around 32 per cent of its exports, thanks to its economic diversification policies.”

The IMF stated that oil prices recovered by more than what had been anticipated during the second quarter of this year. This implies that growth in oil production in the US will slow faster than redicted.

The IMF foresees the average oil price to be at US$59 per barrel this year, with a slight increase in 2016.

“In the future, we are likely to see a budget deficit in Saudi Arabia, UAE and Qatar, especially as the Brent oil price is seen to average between $50 to $70 per barrel over the coming four years,” said Mr Waleed.

The IMF expects advanced economies to grow by 2.1 per cent this year from 1.8 per cent in 2014 – with a gradual pickup in growth to 2.4 per cent next year.

The IMF believes the unanticipated slowdown in growth in the US, which accounts for a major share of the growth forecast for advanced economies, to be temporary. Especially as key growth drivers such as the increase in consumption and investment in the US, as well as a growth in wages, and lower fuel prices, are intact.

In the euro zone, apart from the Greek debt crisis, the economic recovery for EU countries looks stable.

“Growth projections have been revised upwards for many euro-area economies, but in Greece, unfolding developments are likely to take a much heavier toll on activity relative to earlier expectations,” said the IMF.

Overall, global growth is expected to be 3.3 per cent this year – a touch below 2014’s rate – as the IMF cut its forecast of 3.5 per cent in April, mainly because of the US’s economic stumble in the first quarter.

selgazzar@thenational.ae

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