Saudi, Kuwait, UAE face 2009 recession - IMF

The region’s largest oil exporters – Saudi Arabia, Kuwait and the UAE – will slip into recession this year, the International Monetary Fund (IMF) said as it slashed its growth forecast for the GCC.

The IMF cut its 2009 growth projection for the Gulf bloc to 1.3 percent from a 3.5 percent forecast in February, citing a sharp drop in oil prices, a contraction in global demand and the tightening of international credit markets.

The Saudi economy may shrink by 0.9 percent, Kuwait by 1.1 percent and the UAE by 0.6 percent.

Over all, growth in the Middle East and Central Asia will fall to 2.5 percent from 6 percent last year, it said.

“The Middle East and North Africa will be negatively affected by the current global economic crisis, but it is likely to fare better than many others,” said Masood Ahmed, director of IMF's Middle East and Central Asia Department.

“This is in part due to prudent financial and economic management, and in part to the fact that oil exporters in the region can draw upon their large reserves to cushion the impact of the global slowdown for their own economies and for the economies of their neighboring countries with whom they have growing economic links.”

Despite little or no exposure to toxic financial assets, Mid East economies have been hit by the downturn in advanced economies and the decline in commodity prices.

But the slowdown in non-oil growth should be moderated by plans to maintain public expenditure, as well as by the easing of monetary policy, Ahmed said.

Between 2004 and 2008, the Middle East’s oil exporting countries grew by about 6 percent a year, accumulated $1.3 trillion in foreign assets, and launched huge investment projects to expand capacity and improve infrastructure.

Countries where public debt levels are not a concern should maintain or increase public spending, Ahmed said.

The GCC non-oil economy will grow by 3.9 percent this year, compared with a 4.3 percent contraction in the oil sector, according to the report.

Key risks to this forecast include a sharp deterioration in the balance sheets of financial institiutions.

Gulf countries need to keep a close eye on their banking systems and, where appropriate, conduct “stress tests” and assess recapitalisation needs, the IMF said.

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