JEDDAH — Earlier this month, the IMF cut its global growth outlook for 2015 for the second time this year. The world annual growth forecast for 2015 was reduced by 20 basis points (bps) in each of the June and October updates, from 3.5% in April to 3.1%. Three major factors are behind the downward revisions: first, the Chinese slowdown; second, the fall in commodity prices, which has intensified this year across most types of goods; and third, the impending normalization of US monetary policy, which is taking longer than initially expected as the Federal Reserve remains concerned about domestic and external headwinds. The IMF also lowered its 2016 global growth forecast by 20bps, but still higher than 2015 at 3.6%. At the regional level, two markets witnessed substantial reductions in their outlooks since the April update: Latin America and the Caribbean, by more than one percentage point for both 2015 and 2016 respectively, and Sub-Saharan Africa, by 70bps and 80bps. The slip in commodity prices has had a large impact on these two regions through the export channel. The headline growth of emerging economies was also downgraded, by 30bps for 2015 and 20bps for 2016. Emerging Asia and the Middle East and North Africa (MENA) regions witnessed the smallest cuts among developing economies for 2015, by 10bps, and no downgrade at all for 2016. This is in part due to their large fiscal buffers. The IMF projects the Gulf to decelerate in 2015, and more sharply in 2016, to less than 3% for the first time in fifteen years (excluding 2009). For this year, the UAE and Bahrain are the only countries expected to soften in the region, by more than 1 percentage point each, while next year's biggest losers are Saudi Arabia and Oman, by around the same magnitude. The only country in the region projected to add more than one percentage point in 2015 and 2016 is Kuwait, by a total of 2.4 additional percentage points. However, this is mostly because the IMF estimates growth to have stalled 0.1% YoY in 2014. Estimates of Kuwait's 2014 GDP growth contrast widely between forecasters, with BMI at 2.7%, Oxford Economics at 1.4% and NBK at -1.6%. The government has had to reduce fiscal spending levels, but its current account surplus is still leading the rest of the region by a wide margin. The only other region forecasted to slow in 2016 is emerging Asia. China, which makes up more than two thirds of the bloc's output, is on an ongoing deceleration, dragging down the headline figure. China is having a profound effect on the rest of the region through the trade, investment and financial channels, with only Thailand and Singapore expected to accelerate this year, but the IMF projects most of them to recover in 2016. Apart from China, only Malaysia is projected to decelerate next year, mainly due to the economy's dependence on oil. Although Asia is forecasted to decelerate from 6.8% in 2014 to 6.5% in 2015 and 6.4% in 2016, the bloc is expected to gain a greater share of the world's output in nominal terms. In fact, the 250bps increase in global share, to 21.9%, is the largest on record – the second largest was in 2009, by 170bps. The sharp surge in the net commodity importer's global share is a direct result of the stronger impact the commodity rout is having on leading exporters. Overall, the IMF might be too optimistic. Historically, the IMF's projections are too high, particularly on the subsequent year. In our view, various factors suggest more global growth sluggishness ahead. The weakening recovery in advanced economies will lead to greater policy uncertainty, which may further destabilize financial markets and emerging economies. Moreover, the Chinese economy will continue to decelerate in 2016, further dampening the commodity market and as a result hurting commodity exporters. Although Asia will decelerate next year, the continent will continue to outperform other emerging markets, gaining a greater share of the world economy, mainly due to the its diversified economic structure and relatively larger fiscal and capital buffers. Meanwhile, the Gulf's strengthening relationship with Asia will help the Arab region avoid a similar fate as the other commodity exporters. Economist at Asiya Investments Company
