High oil price will compensate impact of Iran sanctions on region: IMF

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High oil price will compensate impact of Iran sanctions on region: IMF

Dubai - Jihad Azour advised that countries should focus on building greater resilience.

By Waheed Abbas

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Published: Tue 13 Nov 2018, 11:46 AM

Last updated: Tue 13 Nov 2018, 4:47 PM

The direct impact of Iranian sanctions by the US on the Middle East region will be minimal as the high oil prices could compensate slowdown in the certain sectors, said a senior official of International Monetary Fund (IMF).
"Given the limited level of trade and economic exchange between Iran and region, we don't see uptick in trade significantly. However, there would be impact of the Iranian sanctions by US on region, but it will be limited for the region. In terms of direct impact of trade and financial growth, the impact of sanctions on region is relatively minimal. With current high oil increase, this could be compensated," said Jihad Azour, director, Middle East and Central Asia, IMF.
Jihad Azour noted that global trade is a worry for the region for the regional governments as they are currently contemplating how to redirect trade from Asia, which is one of the largest trading partner for the region.
Though region is not directly exposed to the US market, Azour noted that the indirect impact of trade war can be significant. "Trade war could reduce growth of key partners such as China and Europe, hence, FDI could also decline for the region. And global economic slowdown could lead to less commodity consumption."
In late October, IMF had hiked UAE's growth forecast for 2018-2019 on the back of higher oil prices, continued reforms and increased government. It hiked UAE projection for 2018 to 2.9 per cent and 3.7 per cent next year. It expects Dubai to grow 3.3 per cent in 2018 and 4 per cent in 2019. The UAE capital's economy is projected to grow 2.7 per cent in 2018 and 3.4 per cent next year.
Iran outlook has been significantly downgraded following US sanctions due to oil production drop in coming years, resulting in negative growth the country for 2018-19.

Oil importers growth is forecast to be 4.5 per cent in 2018 and 4 per cent in 2019. Growth of oil exports in Middle East is projected to be 1.8 p cent in 2018 and 2 per cent in 2019. In GCC countries, growth will recover this year and reach 2.4 per cent and 3 per cent in 2019. It is coming from 0.4 per cent contraction in 2017, which means improvement is 2.8 per cent.
Salmaan Jaffery, chief business development officer, DIFC Authority, said the medium to long term outlook for the region is strong.
Speaking at the launch of the IMF Regional Outlook launch in Dubai on Tuesday, he said regional economy is recovering, backed by oi prices but it is uneven.

"Growth in oil exporters is expected to rebound this year and next year, given higher oil production and stronger non-oil activity. Iranian economy is going to witness slowdown in growth it will have negative growth this year and the next. Inflation is expected to exceed 30-35 per cent and exchange rate will come under pressure.

Regionally, he said, the non-oil sector growth is higher than oil sector so it is opportune time to accelerate reform to increase non-oil sector share in the economy.

Citing an example, he noted that helping small and medium enterprises and easy access to financing will allow business to make the most of opportunities and offer good potential to grow.

He advised that countries should focus on building greater resilience.

"There is a still scope for countries in the region to fiscal adjustments that create less headwinds for growth, especially countries can do more in streamlining in public expenditure. While region continues to grow, the outlook has become more uncertain and challenging so reforms need to be accelerated so that citizen will have more opportunities and build better prospects for the future," Azour said.

-waheedabbas@khaleejtimes.com


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