IMF further lowers UAE's economic growth forecast, projects 6.6% contraction

IMF chief economist Gita Gopinath.

The International Monetary Fund (IMF) on Tuesday further revised down the UAE's economic forecast due to impact of Covid-19 on the country's vital sectors and fall in oil prices, projecting a 6.6 per cent contraction in 2020 and a growth of 1.3 per cent for the next year.

The IMF had projected a 3.5 per cent contraction for 2020 and a 3.3 per cent growth in 2021 for the UAE in its World Economic Outlook report issued in April.

The UAE will see negative inflation of 1.5 per cent this year. However, current account balance will stay in the positive territory at 3.6 per cent and 7.5 per cent for 2020 and 2021, respectively, it said in its latest World Economic Outlook released on Tuesday.

For the Middle East and North Africa region, the IMF projected a 5.0 per cent contraction in 2020 and a 3.2 per cent growth for the following year. For the oil-exporting Middle East and Central Asian countries, it forecasted a 6.0 per cent contraction in 2020 and a 3.3 per cent growth in 2021, while for oil importers it foresees a 1.1 per cent contraction and 2.5 per cent growth in 2020 and 2021, respectively.

Khatija Haque, chief economist at Emirates NBD Research, expects Gulf countries' GDP growth to rebound in 2021, assuming the pandemic is contained with a vaccine available for wide distribution in the first half of 2021.

"However, most governments in the region are likely to prioritise deficit reduction over growth, which could weigh on a recovery even as the external environment improves," she said in a note released on Tuesday.

Global forecast revised upward a little

According to IMF, global growth is projected at minus 4.4 per cent in 2020, a 0.8 per cent less severe contraction than forecast in June 2020, thanks to better-than-anticipated second quarter GDP, mostly in advanced economies, where activity began to improve sooner than expected after lockdowns were scaled back in May and June, as well as indicators of a stronger recovery in the third quarter.

For 2021, global growth is projected at 5.2 per cent, 0.2 per cent lower than in the June forecast, reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing.

"We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast. The revision is driven by second quarter GDP outturns in large advanced economies, which were not as negative as we had projected," said Gita Gopinath, chief economist of the IMF.

"Moreover, recovery is not assured while the pandemic continues to spread. While the global economy is coming back, the ascent will likely be long, uneven, and uncertain. Indeed, compared to our forecast in June, prospects have worsened significantly in some emerging market and developing economies where infections are rising rapidly," she said in the World Economic Outlook.

On Tuesday, Oxford Economics also revised down its global GDP growth forecast for 2021 to 5.2 per cent from 5.4 per cent. The new forecast is over 0.1 per cent lower than anticipated in June. Some of the change reflects revisions to GDP in 2020, but Oxford Economics is more conservative about the quarterly rate of growth in 2021.

IMF said the advanced economy group is projected to contract 5.8 per cent in 2020, 2.3 per cent stronger than June 2020 forecast. The upward revision reflects, in particular, the better-than-foreseen US and euro area GDP outturns in the second quarter.

In 2021, the advanced economy growth rate is projected to strengthen to 3.9 per cent, leaving 2021 GDP for the group some two per cent below what it was.

In 2019, 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 per cent is projected for the euro area in 2020, 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.

Among the major economies, IMF foresees 10.3 per cent contract this year for India and 8.8 per cent growth in 2021. For China, IMF projects growth of 1.9 per cent and 8.2 per cent for 2020 and 2021, respectively.

waheedabbas@khaleejtimes.com