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DUBAI: The International Monetary Fund on Monday raised its growth projection for the deficit-hit Saudi economy on the back of higher oil prices but retained its estimates for the region.
In its World Economic Outlook update, the IMF said the Saudi economy — which shrank 0.7 percent last year — is expected to grow by 1.6 percent in 2018, up 0.5 percent on its October estimates.
The Saudi economy is also projected to grow by 2.2 percent next year, up 0.6 percent on the previous estimate, it said.
The IMF however maintained its October projections for growth in the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region at 3.6 percent and 3.5 percent for this year and 2019, respectively.
“While stronger oil prices are helping a recovery in domestic demand in oil exporters, including ��������Ƶ, the fiscal adjustment that is still needed is projected to weigh on growth prospects,” the IMF said.
It said oil prices rose 20 percent between August and October of last year.
The Saudi economy, the largest in the region, contracted last year for the first time since 2009 when it dove into negative territory due to the global financial crisis.
The kingdom has posted budget deficits in the past four fiscal years since oil prices began to plunge. It is projected to remain in the red until 2023.
Riyadh has introduced a series of austerity measures to boost non-oil income, raising the prices of fuel and power, imposing fees and charges on expatriate labor and introducing a value-added tax (VAT) of five percent.
Economic growth in the oil-dependent Gulf states has plummeted due to a sharp drop in oil revenues.
meanwhile, the IMF revised up its forecast for world economic growth in 2018 and 2019 saying that sweeping US tax cuts were expected to boost investment in the world’s largest economy and help its main trading partners.
In an update of its World Economic Outlook, the IMF however warned that US growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts start to expire.
The tax cuts would likely widen the US current account deficit, strengthen the US dollar and affect international investment flows, IMF chief economist Maurice Obstfeld said.
The Fund revised up its forecast for global growth to 3.9 percent for both 2018 and 2019, a 0.2 percentage point change from its last update in October.
It also said that economic activity in Europe and Asia was surprisingly stronger than expected last year, and global growth in 2017 was now estimated to have reached 3.7 percent, 0.1 percentage point higher than the Fund projected in October.
“The US tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts,” the IMF said in the update, which was released on the sidelines of the World Economic Forum in Davos, Switzerland.
The IMF said the US economy was now expected to expand by 2.7 percent in 2018, higher than the 2.3 percent the Fund forecast in October. US growth was projected to slow to 2.5 percent in 2019, it said.
The IMF also revised up its growth forecasts for the euro area, especially for Germany, Italy and the Netherlands “reflecting the stronger momentum in domestic demand and higher external demand.”
However, it cut its forecast for Spain’s growth for 2018 by 0.1 percentage point, saying political uncertainty was expected to impact business confidence and demand.
The Fund revised up its growth forecast for Japan to 1.2 percent this year and 0.9 percent in 2019. It maintained its projection for Britain’s growth at 1.5 percent this year.
The IMF maintained its forecast for growth in emerging markets and developing countries for this year and next. China’s economy was expected to expand 6.6. percent this year and slow to 6.4 percent in 2019.
The IMF said growth in the Middle East, North Africa, Afghanistan and Pakistan was also expected to pick up in 2018 and 2019 but remain subdued at 3.6 percent this year.
The IMF revised down its growth estimate for South Africa to 0.9 percent for this year and next amid concerns over political uncertainty. It maintained its projections for Nigerian growth at 2.1 percent this year and 1.9 percent in 2019.
In Latin America, growth will be weighed down by an economic collapse in Venezuela despite a pick-up in economic activity in Brazil and Mexico, the Fund said.