Arab economies are expected to grow by 2.8 percent in 2015 and 3.5 percent in 2016: Arab Monetary Fund

ABU DHABI, 16th September, 2015 (WAM) -- In line with its continuous efforts to assist the economic decision making process in Arab countries, the Arab Monetary Fund, AMF, has released the September edition of "Arab Economic Outlook Report", containing updated forecasts of economic growth and inflation rates for Arab countries in 2015 and 2016, with economies expected to grow by 2.8 percent and 3.5 percent respectively. The report noted that world economic activity has not improved markedly during the first half of the year, contrary to what was anticipated by international organisations earlier this year. The modest economic performance is mainly attributed to several factors, the most important of which are the less than expected performance of the US economy, the continuation of worries about Eurozone economic recovery, the contraction of economic activities in the Commonwealth of Independent States due to geopolitical risks, and the slowdown of economic growth in many developing and emerging market economies, notably China and oil-exporting countries. As a result, growth rate of world economy has been revised down to 3.3 percent in 2015. On the other hand, international organisations expect world economic growth to increase to 3.8 percent in 2016 due to improved economic prospects in both developed and developing economies. International trade is expected to grow by 4.1 percent and 4.6 percent in 2015 and 2016 respectively. Despite the recent gradual rise in international trade growth rates, they are still far below levels recorded before the international financial crisis, which were three times more than the current levels. On global oil markets, they are still influenced by the fragile economic recovery and the abundance of oil supplies. International oil prices, although improved relatively in the second quarter compared to the first quarter of the year, remain less than average prices registered during 2013 and 2014 by 50 and 40 US$ per barrel respectively. Oil prices have risen by 20 percent in the second quarter of 2015, compared to the first quarter. However, it resumed the decline during the third quarter of the year and lost previous gains in the light of concerns of global economic performance and the turbulence in a number of international stock exchanges in developed and emerging markets economies. Accordingly, international organisations expect oil prices to decrease by around 40 percent in 2015 and to rebound by 9 percent next year amidst enhanced growth expectations. The September edition of the Arab Economic Outlook Report indicated that the aforementioned developments will reflect on global domestic demand, hence on the growth prospects of Arab economies in 2015 and 2016, where exports contribute about 53 percent of the aggregated demand levels and oil receipts constitute around 68 percent of the total public revenues for Arab countries as a group. As result of possible implications of the global economic environment, domestic economic developments seen in Arab countries throughout the year and based on the key assumptions of the report, AMF expects Arab economies to achieve a growth rate of about 2.8 percent in 2015, reflecting improvement in growth prospects in some Arab countries and a weakening in some others. The growth rate of Arab oil-exporting countries is expected to decline to 2.7 percent in 2015 compared to 3 percent in 2014. The uneven performance is still expected to remain within this group of countries. GCC economies are expected to be less affected by the declining trend of oil and gas prices due to the tendency of some of these countries towards increasing oil output levels in 2015 and the positive impact of counter-cyclical fiscal policies adopted to support economic activities. The growth rate of GCC economies is forecast to be 3 percent in 2015 compared to 3.4 percent in 2014. On the other hand, gross domestic product of other Arab oil-exporting countries, except Algeria, is anticipated to contract in 2015, reflecting the impact of declining oil prices on the economies of these countries, which will be compounded by the effects of internal developments. As for Arab oil-importing countries, which have witnessed unfavourable economic developments in the last years, they are likely to benefit from relatively stable conditions, the positive impact of recent economic reforms and the declining trend of oil prices. The growth rate of this group of countries is expected to increase to 3.4 percent for 2015 compared to 2.5 percent for growth achieved last year. As for 2016, the report expects economic activities to improve in both Arab oil-exporting countries and Arab oil-importing countries, hence AMF expects Arab economies to achieve a relatively higher growth rate of around 3.5 percent next year. Higher oil prices anticipated in 2016 will reflect positively on levels of economic activity in oil-exporting countries. The growth rate of Arab oil-exporting countries is estimated to rise to 3.4 percent in 2016 supported by rising GCC growth rate. The Gulf Cooperation Council economies are expected to grow by 3.7 percent next year in light of higher hydrocarbon revenues and the acceleration of implementation process of some large investment projects under plans being implemented to increase economic diversification. Arab oil-importing countries are forecast to record growth rate of around 4 percent next year due to the positive impact of improved global demand, which will support production of goods and services and create more job opportunities. However, this group of countries could be negatively affected by the higher oil prices, which will add more pressures on the public budget and lead to lower levels of social and capital spending. With respect to inflation forecasts in 2015, the inflation rate for Arab countries as a group is forecast to decrease to 7.4 percent compared to 8.2 percent in 2014. The AMF report referred to a group of factors that will influence domestic price levels in Arab countries in 2015. At the top of these factors, the expected decline in imported inflation, which is considered one of the important inflation determinants in many Arab countries, either due to lower international oil prices or as a result of the appreciation of some Arab currencies pegged to the dollar against some other major currencies throughout the year. These factors are likely to lower inflation rates in many Arab countries, however, inflationary pressures resulted from supply side shocks in some other Arab countries could limit this declining trend. As per country groups, the inflation rate is expected to increase to 4 percent in Arab oil-exporting countries, with uneven performance within the group. As the inflation rate in GCC countries is expected to decline to 2.4 percent, it is likely to rise in other Arab oil-exporting countries to 4.3 percent. In Arab oil-importing countries, inflation is forecast to recede to 10.7 percent in 2015. In 2016, the report expects the inflation rate for Arab countries as a group to rise to 7.8 percent, reflecting the possible increase in international oil prices and also the potential demand pull inflationary pressures resulted from higher economic growth and the accelerated implementation pace of some huge investment projects in a number of Arab countries. In addition, other inflationary pressures could emerge from possible depreciation of some Arab currencies against the dollar and the tendency of a greater number of Arab countries, including Arab oil-exporting countries, to reform subsidy systems in 2016, especially in the light of possible increases in oil prices next year. As per country groups, Arab oil-exporting countries are expected to record a higher inflation rate of 4.3 percent in 2016. The inflation rate is expected to rise in GCC countries to 2.8 percent, whereas inflation is expected to reach 4.6 percent in other Arab oil-exporting countries. In Arab oil-importing countries, inflation is anticipated to rise to 11.4 percent. – Emirates News Agency, WAM -