Bullish about 2010 but IMF admits 2009 forecast wrong
Posted on 12 October 2009 with no comments from readers
It is hard to know how much credence local business should place on regional forecasts from the International Monetary Fund. The latest predictions are for better than forecast growth for 2010 while at the same time we hear than growth for 2009 will be worse than predicted as recently as May.
Readers of this website might recall our previous skepticism about the growth outlook when the IMF made its pronouncements in May, and the IMF has now corrected its modest growth forecast for 2009 to a one per cent fall for Saudi Arabia and minus 0.5 per cent for the UAE. If we take this as a forecasting trend then the outcome will be a further revision to an even lower figure for 2009.
Rosy 2010?
So why then should we believe the IMF about 2010 looking rosier? Admittedly this is not a big revision, with next year’s growth estimate up from a positive 3.7 to 4.2 per cent.
Of course, predicting GDP growth in 2010 depends crucially on the underlying oil price assumptions for that year. The IMF says the average global oil price for 2010 will be $76.50 and that will boost the foreign currency reserves of the GCC by $100 billion.
This cash flow is more than enough to refinance the debts of certain certain regional governments and help stave off a banking crisis as the inevitable write-offs are made for bad debts. The National quoted banking sources as saying about 2.5 per cent of UAE and 3.1 per cent of Kuwaiti loans are classified as non-performing, and that is likely an underestimate.
Oil price outlook
However, the oil price is difficult to predict at the best of times, and in the worst of times it is not necessarily going to behave as forecasters would like. If the world enters a double-dip recession as some economists suggest then the oil price could take a dramatic plunge downwards again as it did last December.
Then the IMF would have to rapidly revise its 2010 forecast to reflect the changed outlook for regional oil revenues. Positive forecasts turning negative would again be a distinct possibility.
But perhaps the message for investors and business managers is that the IMF forecasts should be treated with caution in an uncertain economic outlook. Preparing for a recovery that may well not arrive could be a big disappointment.
