The International Monetary Fund has lowered its economic growth forecasts for most Arab countries over unrest in the region but said growth would remain generally strong in Qatar, Saudi Arabia and other oil-rich Gulf states.
In its semi-annual World Economic Outlook released, the IMF said the Middle East and North African (Mena) region would grow by 2.6% this year, compared with 3.2% forecast in April.
And even though the figure for next year is seen as higher, it was cut from 4.5% to 3.8%.
“With increased strife in some countries in the region, the projected pickup in growth in 2014… is now projected to be weaker relative” to the April forecast, the IMF said.
“Growth is expected to increase in 2015, assuming that security improves, allowing for a recovery in oil production, particularly in Libya,” it said.
The most spectacular drop is expected in Iraq, whose economy is being hit hard by the conflict between a US-led coalition and the Islamic State group.
The IMF now expects growth to contract by 2.7% this year after it was forecast to grow by a whopping 5.9%.
And oil-dependent Iraq is seen growing only 1.5% next year, compared with 6.7% projected in the April report.
For oil exporters as a whole – the Gulf states, as well as Algeria, Iraq, non-Arab Iran, Libya and Yemen – the IMF lowered 2014 growth forecast to 2.5% from 3.4%.
And the outlook for 2015 was cut to 3.9% from 4.6%.
The IMF said growth in the six-nation Gulf Co-operation Council (GCC) states is projected to remain strong at an average 4.5% in 2014 and 2015.
The IMF increased its economic growth projections for Qatar, Saudi Arabia and the United Arab Emirates, but lowered those for Kuwait, whose economy contracted by 0.4% last year.
But it warned of oil price fluctuations due to weaker demand and increased non-Opec production, particularly from the US.
Among the non-GCC oil exporters, and excluding Iran, growth is forecast to average only 0.25% in 2014 given recent political shocks and deteriorating security. It is projected to recover to 3.0% in 2015, assuming a rebound in oil production in Iraq, Libya and Yemen.
“These assumptions are, however, subject to significant uncertainty,” the IMF said.
A key priority for most of the oil exporters is to shore up weakening fiscal balances, the IMF said. The overall fiscal balance is projected to decline from 2.0% of gross domestic product in 2014 to 1.0% in 2015.
Fiscal surpluses are too low in most GCC countries to enable them to save an equitable share of oil wealth for future generations and are expected to vanish by 2017.
Meanwhile, all non-GCC oil exporters are running fiscal deficits.
Iran, whose economy shrank 1.9% last year, is showing signs of recovery. It is expected to grow 1.5% in 2014, unchanged from April’s projections, and by 2.2% next year, slightly off from the 2.3% April forecast.
The growth outlook for oil-importers has also been lowered slightly from April.
“Economic activity in the oil importers is projected to improve only gradually as they continue to deal with difficult sociopolitical transitions, subdued confidence and setbacks from regional conflicts,” IMF said.
Economies of the so-called Arab Spring countries, mainly Egypt and Tunisia, will continue to be negatively affected by instability, the IMF said.
After growing 2.1% in 2013, Egypt’s economy is expected to expand by 2.2% in 2014, slightly lower from 2.3% expected in April. The forecast for next year has been lowered from 4.1% to 3.5%.
The economy of Tunisia, cradle of the wave of Arab uprisings, is expected to grow 2.8% in 2014, only slightly off the 3.0% April forecast.
In 2015, it is expected to see 3.7% growth, compared with 4.5%.