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Gulf economies are performing well due to the “relentless” pursuit of reforms and not just because of high oil and gas prices, International Monetary Fund managing director Kristalina Georgieva said on Monday.
“There is this impression that the only reason the Gulf countries are doing well is high oil and gas prices — this is not true,” Ms Georgieva said at the World Government Summit in Dubai.
“They have been opening up more space for private investments and for jobs being generated by competitive businesses.”
GCC countries, including the UAE, are relying more on collected taxes, she said.
Last January, the Emirates introduced the federal corporate tax with a standard statutory rate of 9 per cent, which will come into effect for businesses whose financial year starts on or after June 1 this year.
The Middle East and North Africa region is forecast to grow by 3.2 per cent this year, following a 5.4 per cent expansion last year as the Opec+ group of countries sticks to an oil output cut of 2 million barrels per day, according to the IMF.
Opec+ announced a reduction of its collective output in October amid growing signs of an economic slowdown and Covid-19 curbs in China, the world’s second-largest economy and top crude importer.
Brent, the benchmark for two thirds of the world’s oil, surged to $90 a barrel last month after China reopened its borders after nearly three years of adhering to a strict zero-Covid policy. The global benchmark has since given up some gains and was trading at $85.70 on Monday evening.
The UAE economy is estimated to have grown by 7.6 per cent last year, the highest in 11 years, after expanding by 3.9 per cent in 2021, the UAE Central Bank said.
Overall, the country’s economy is projected to grow 3.9 per cent this year, while non-oil sector expansion is estimated at 4.2 per cent and oil GDP projected at 3 per cent, the Central Bank said
The IMF recently raised its global economic growth estimate for this year to 2.9 per cent from a previous forecast of 2.7 per cent.
“[Global financial] markets have a good reason to be more upbeat because ... the US economy is likely to avoid a recession,” said Ms Georgieva.
“They [markets] are also seeing China reopening and Chinese consumers rushing to spend the money they saved during the lockdown.”
The IMF expects central banks to continue monetary tightening to keep inflation in check, the fund’s chief said.
This month, the US Federal Reserve raised interest rates — for the eighth time since last year — by 25 basis points, while indicating that more increases were to come.
The latest announcement puts the Fed's target range to between 4.50 per cent and 4.75 per cent — about 50 basis points away from its end-of-year projection of 5.1 per cent.
“Inflation is trimming down, [but] the fight is not won yet,” said Ms Georgieva.
Meanwhile, global equities have rallied over the first weeks of the year, supported by the prospect of a peak in inflation and hopes that the US economy is headed for a soft landing.
“We have markets that are in love with good news and they do not keep their ears open for the more nuanced message from the Fed and the European Central Bank,” said Ms Georgieva.
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Will the pound fall to parity with the dollar?
The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.
Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.
New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.
“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.
The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.
The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.
Bloomberg
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