The increase of oil prices during the first half of 2018 will drive economic growth in the Middle East and North Africa region into 2019, according to the IMF.

In its latest Economic Outlook, the IMF revealed that it is forecasting real GDP growth for the oil-exporting Middle East, North Africa and Pakistan group of 1.4 per cent in 2018 and 2 per cent in 2019, up from 1.2 per cent in 2017.

In addition to spillover from higher oil output, the IMF attributed the growth to a pickup in non-oil activity, underpinned by a slower pace of fiscal consolidation initiatives. However, despite seeing a pickup in non-oil growth in the majority of oil-exporting countries, the IMF expects non-oil growth to remain flat into 2018 and 2019 from the 2.4 per cent recorded in 2017. This is mainly due to a drop in non-oil activity in Iran.

Broken into subgroups, the IMF forecasts that economic growth in the GCC will recover to 2.4 per cent in 2018 and 3 per cent in 2019, following a 0.7 per cent contraction in 2017. The growth will be driven by the implementation of major public investment programmes including the five-year development plan in Kuwait, infrastructure projects ahead of the 2020 Expo in Dubai and the 2022 World Cup in Qatar.

Bahrain is an exception, however, with the expected fiscal consolidation programme to slow non-oil activity.

Growth for non-GCC oil exporters is expected to slow to 0.3 per cent in 2018, down from 3 per cent in 2017, before picking slightly to 0.9 per cent in 2019. The expected decline is largely due to the expected impact of the re-imposition of US sanctions on Iran.

While the higher oil prices will improve growth prospects for the oil-exporting group, the IMF says risks remain over the medium term. These include tightening of global financial conditions, rising trade tensions in the global economy that may put downward pressure on oil prices and spillovers from regional conflicts.

In its latest report, the monetary fund stresses that while a slower fiscal consolidation may be justified in the short term, consolidation efforts should continue in the medium term ensure a sustainable use of oil revenues.

“Continued structural reforms will facilitate private sector development and strengthen long-term resilience. Any delays on the structural reform agenda could curtail economic diversification and inclusion.”