x Abu Dhabi, UAESunday 21 January 2018

2009 is going to be a tough year: IMF

Masood Ahmed, the director of the IMF's Middle East and Central Asia Department, discusses the fund's outlook for the Gulf.

Masood Ahmed, the director of the IMF's Middle East and Central Asia Department.
Masood Ahmed, the director of the IMF's Middle East and Central Asia Department.

Q) In your outlook last October, your department forecast 6 per cent growth for the Middle East and Central Asia. Now you forecast growth of just 2.6 per cent. Why have things deteriorated so much?

A It has gone down a lot. But when you look at that number, you want to distinguish between the oil importers and the oil exporters. And when you look at oil exporters you want to disaggregate the oil GDP and non-oil GDP. Oil GDP for that group is going down by 3 per cent or 3.5 per cent this year. But that's simply saying that oil production is going down. The more meaningful number for oil exporters is non-oil GDP, which is going up by between 3.5 per cent and 4 per cent. That's a reflection of the fact that they've decided, most of them, to continue to spend. Particularly for capital projects. And this is softening the impact of oil prices on them, and it's protecting their neighbours a little bit, because of the linkages they have with their oil imports.

What are the other principal ways the crisis is affecting the region? Among the oil exporters, credit has come down. Some also had big run-ups in real-estate and equity markets before the crisis, and both of those have come down. The implications of falling asset prices and the slowdown in economic activity on the balance sheets of corporations and banks is something that everybody in the world is dealing with, and that's happening here, too. But we don't see this posing any systemic problem.

So is the worst of the crisis behind us in the Gulf? Well, I don't know about oil prices. I've sort of given up. We tend to rely now on the futures market to project oil prices. We've discovered we don't have a better technology. As to the impact on trade flows, clearly if you look at what's happening in global numbers, we still think 2009 is going to be a tough year. We're not at the point of saying it's all going back up.

You don't see "green shoots" emerging? That's the popular expression these days, but as someone else suggested, perhaps they're bamboo shoots. Our view is that there are two opposing forces acting on the world economy. One is pushing it down - the financial market deleveraging, which is still happening, and the uncertainty and lack of confidence. The other is what's pushing the economy up - the consequences of policy actions, including the stimulus and the liquidity that's been provided. At the moment, we still think the first is more dominant, but we do think by the end of the year the second should begin to drive the agenda. A lot of this is also driven by confidence and people's own perceptions, so precisely when the two forces are going to balance out, it's hard for us to take a firm position on.

What, then, are the biggest risks to the region? That it might take a bit longer to recover. A prolonged European recession would have an impact. For oil exporters, it would make the oil price stay low a lot longer. They have the reserves to sustain that, but the question is for how long. One year or maybe two. But we're not working on scenarios of many years of negative growth. Can or should Gulf central banks adopt the kind of quantitative easing, and "unconventional measures" to boost liquidity demonstrated by the Federal Reserve, the Bank of England and the European Central Bank? There's no need to get unconventional yet. warnold@thenational.ae afitch@thenational.ae