The IMF yesterday cut its forecasts for global economic growth for the second time in a year, as it warned of the impact of a collapse in commodity prices and China’s economic slowdown.
The fund’s estimate for global growth in 2015 was cut to 3.1 per cent – its second downgrade in a year. In July, it expected global growth of 3.3 per cent – a downgrade from last October’s projection of 3.8 per cent.
This 0.7 percentage point cut to its forecasts – equivalent to a drop of US$870 billion in output growth – has been led by a collapse in the price of commodities as China’s economy slows, reducing the global economy’s largest source of demand for extracted resources.
The Bloomberg Commodities Index has fallen by 25 per cent in the past 12 months.
Copper prices have fallen by about 25 per cent since October 2014, while the oil price fell from highs of $110 in June last year to $49 per barrel yesterday.
“Years of high global demand drove prices upward and spurred investment in commodity sectors,” Maurice Obstfeld, the IMF’s chief economist, said yesterday. “But as China began to slow earlier during the present decade, many commodity prices turned downward starting in the second half of 2011, and their fall has accelerated recently.”
For commodity-exporting nations, growth will slow to 4 per cent this year, down from 4.6 per cent last year. These countries, which include the oil-exporting nations of the Arabian Gulf, account for about half of the global economy.
Saudi Arabia has had a better than expected 2015, as high oil output has continued to support growth. The IMF now expects that the kingdom will grow by 3.4 per cent this year – faster than the 2.8 per cent growth it forecast in August.
But Jason Tuvey, an emerging markets economist at Capital Economics, said the kingdom’s “growth will be broadly flat this year, and a slowdown is on the cards for 2016.”.
But the longer-term outlook for Saudi Arabia has been cut by the IMF. The fund expects the country to grow at 2.2 per cent in 2016, down from the August forecast of 2.4 per cent growth.
That is because the Saudi Arabian government said in September that it would begin to cut capital expenditure in its 2016 budget.
“Saudi Arabia is going through the major challenge of oil revenues at half the level [they were] just one year ago,” said Philippe Dauba-Pantanacce, a senior economist for the Middle East at Standard Chartered.
“But it all comes down to how long this will last – Saudi Arabia can continue for some time to draw down on its reserves. There is no doubt that Saudi is going through a reassessment of its spending priorities – but economic diversification strategies will remain central to its long term development.”
An 0.2 percentage point cut to Saudi’s growth forecast implies that the country’s growth will be about $15bn lower in 2016 than previously forecast by the IMF.
The ratings agency Standard and Poor’s cut Saudi Arabia’s credit rating outlook to negative in February, citing the country’s worse growth outlook and deteriorating fiscal position.
The IMF said last week that the looming rise in US interest rates – which affects dozens of countries that peg their currencies to the dollar, the UAE included – could lead to a wave of bankruptcies in emerging market economies as companies that took advantage of the lowest interest rate in recent history find their debt burdens growing unaffordable.
abouyamourn@thenational.ae
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