The rise of oil prices have pushed up growth forecasts for the major oil exporting countries in the Gulf Cooperation Council (GCC) for this year and next by the International Monetary Fund (IMF), according to a top official in the fund.

“In the GCC countries and following a contraction that we witnessed in 2017, growth will recover this year and will reach 2.4 percent and for next year it is expected to be at 3 percent. In fact, it is coming from minus 0.4 (percent) in 2017,” Jihad Azour, the director of the fund’s Middle East and Central Asia department, told reporters at a press conference in Dubai on Tuesday.

A recent update by the IMF in May this year had previously estimated that GDP growth in the GCC would be 1.9 percent this year and 2.6 percent next year.

However, the fund’s regional director has said that more investments are needed in the private sector and in sectors such as education to trickle down the growth effect throughout their local economies.

“The increase in oil price is reflected into the numbers, as you see, but it did not trickle down yet,” Azour added.

The media event came one month after the IMF’s latest regional economic outlook report for the Middle East and Central Asia region was published in October.

Azour gave the following growth forecasts for Saudi Arabia and the UAE for this year and next, as well as providing a like-for-like comparison for 2017.

Year2017Projected for 2018projected for 2019
    
UAE0.8    2.93.7
*Abu Dhabi -0.52.73.4
*Dubai 2.8 3.3
 Saudi Arabia-0.92.22.4

The IMF has increased its forecast for the UAE from a previous estimate it issued in April, which predicted a GDP growth increase by 2 percent this year and 3 percent in 2019. Azour said the increase was mainly due to the rise in oil prices, but the fund did not change its forecast for Saudi Arabia.

The economies of the GCC and other oil exporting nations have been harmed by a sharp drop in oil prices that occurred in late 2014 and 2015. Oil prices started to rise last year and have stabilised following a historic agreement between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries in December 2016 to cut oil supply.

Azour said that more investments in education and the private sector were required, along with deeper reforms in rules governing and enabling small and medium-sized industries. 

Oil-importing states

Azour said that oil-importing nations in the Middle East and Central Asia region, including Egypt, the third-biggest Arab economy, are expected to grow at an average of 4.5 percent in 2018 and at 4 percent in 2019, from a 2017 growth rate of 4.1 percent. 

“These averages mask great variation across countries, for example while growth in a country like Egypt is projected to be more than 5 percent in 2018 as well as also in 2019, reflecting the pay-off from reforms, many oil importing countries are expected to grow at less than 3 percent,” Azour said.

Egypt, the Arab world’s most populous nation, has embarked on a serious economic reform plan since 2016. The plan included subsides cuts and floating its currency, which has led to headline inflation peaking at 33 percent in July 2017, and a gradual decline to 11.5 percent in May this year, but a gradual uptick since to hit 17.7 percent last month, according to the country’s Central Bank. Meanwhile, unemployment in the country has declined to 9.9 percent in the second quarter of this year, down from 12 percent in the same period a year earlier.

Azour said the increase in oil prices could impact the fiscal situation of non-oil economies, adding extra pressure on them to accelerate reforms, especially for countries with high debts.

“Countries in the (Middle East and Central Asia) region are encouraged to promote more private sector investment which, in fact, has stagnated since the global financial crisis. In one of our chapters (of the IMF’s October outlook report for the region) we in fact show clearly that improving FDIs and private sector investments will have a direct positive impact on growth and for that public policies should focus more on improving investment in education, access to finance, access to some key economic infrastructure,” Azour said.

He added that the while the region “continue(s) to grow as whole, the outlook has become more uncertain and challenging”.

“Reforms need to be sustained and in certain cases we need to accelerate some of the reforms in order for the region to become in fact a place where citizens will see more opportunities and build a more prosperous future,” Azour said.

(Reporting by Yasmine Saleh; Editing by Michael Fahy)

(yasmine.saleh@refinitiv.com)

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