IMF Lowers Saudi Arabia Growth Forecast After Oil Output Cut

by Vivian Nereim and Zainab Fattah

The International Monetary Fund lowered its growth forecast for Saudi Arabia next year, as oil production cuts and austerity measures take a toll on the biggest Arab economy.

The Saudi economy is expected to expand 1.3 percent in 2018, down from a 2.3 percent projection in January, the IMF said in its World Economic Outlook report on Tuesday. The Washington-based lender left this year’s forecast unchanged at 0.4 percent, citing “lower oil production and ongoing fiscal consolidation.”

Saudi Arabia’s economy has slowed since 2014, when the kingdom’s refusal to cut output in the face of oversupply contributed to a collapse in oil prices that damaged public finances. Deputy Crown Prince Mohammed bin Salman’s plan to overhaul the economy and reduce its reliance on crude are also weighing on growth, as the government and private companies look for savings, and consumers watch their wallets.

The kingdom is bearing the brunt of output cuts that members of the Organization of Petroleum Exporting Countries pledged to make in the first six months of this year. Saudi Arabia pledged to cap its output by 486,000 barrels per day to 10.058 million barrels. Production fell last month to 9.9 million barrels a day, according to OPEC data.

OPEC ministers are scheduled to gather in Vienna on May 25 to discuss whether to extend the output curbs.

Saudi Finance Minister Mohammed Al-Jadaan told Bloomberg in January that he expected growth this year to be “north of 1 percent,” or significantly higher than the IMF’s projection. The median in a Bloomberg survey of economists is also slightly more optimistic than the IMF, predicting growth at 0.6 percent this year and 1.8 percent next.

Regional Impact

The IMF said in the report that the OPEC agreement will hurt producers across the Gulf this year, and mask “the expected pickup in non-oil growth.”

In the United Arab Emirates, growth will fall to 1.5 percent this year from 2.7 percent in 2016, the IMF said, before rebounding to 4.4 percent next year. The lender had forecast growth at 2.5 percent for this year in October.

Kuwait’s economy is now expected to shrink by 0.2 percent in 2017, compared with the IMF’s October forecast for a 2.6 percent expansion. Growth will rebound to 3.5 percent next year, the lender said in the report.

Used to budget surpluses that have helped it to create the world’s fourth-largest sovereign wealth fund, Kuwait is forecasting a deficit of 7.9 billion dinars ($25.9 billion) in the current fiscal year. That’s pushed the government to cut subsidies, and it also raised $8 billion in its first international bond sale in March.

The IMF kept Qatar’s growth forecast for this year unchanged at 3.4 percent.

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