IMF cuts global growth forecast and flags Middle East security worries

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The International Monetary Fund (IMF) lowered its global growth predictions for 2020 despite a slightly improving world economy and warned that geopolitical tensions in the Middle East could impact global oil supplies.

It expects world economic growth to accelerate be 2.9 percent last year, rising to 3.3 percent in 2020 and 3.4 percent in 2021.

The IMF released the figures ahead at the World Economic Forum in Davos, Switzerland.

“Rising geopolitical tensions, notably between the United States and Iran, could disrupt global oil supply, hurt sentiment and weaken already tentative business investment,” the IMF said.

The Middle East and Central Asia is expected to record 2.8 percent growth in 2020, slightly lower than the IMF’s October outlook and reflecting a downward revision to Saudi Arabia’s oil output following last month’s decision by the OPEC+ group to extend supply cuts.

It expects the region to pick up speed in 2021 with growth of 3.2 percent.

IMF chief economist Gita Gopinath said: “We’ve seen clearly a rise in geopolitical tensions in the Middle East. We still have to see how far this goes. If you look at oil prices the reaction has been fairly muted at this point. We’ve seen some increase of about 3 to 4 dollars in the price of oil but nothing very large.”

Regional tensions have escalated sharply after the killing of a top Iranian commander in Baghdad, triggering Iranian retaliatory attacks.

“Prospects for several economies remain subdued owing to rising geopolitical tensions (Iran), social unrest (including in Iraq and Lebanon), and civil strife (Libya, Syria, Yemen),” the IMF said.

Although overall risks to the global economy have reduced over the year, the IMF warned that outcomes “depend to an important extent on avoiding further escalation” between Washington and Beijing.

It also flagged the possibility of new trade tensions emerging between the US and the EU.

“The reality is that global growth remains sluggish,” said IMF Managing Director Kristalina Georgieva. “We are all adjusting to live with the new normal of uncertainty.”

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