## Global Developments

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### Global growth outlook
- Global growth for 2018–19 is projected to remain steady at its 2017 level of 3.7 percent.
- This projection is 0.2 percentage point lower than the April 2018 World Economic Outlook.
- Downward revisions noted for a number of major economies:
  - United States: 2018 unchanged at 2.9 percent; forecast for 2019 revised down due to recently announced trade measures.
  - Euro Area: growth projections marked down after surprises that suppressed activity in early 2018.
  - United Kingdom: growth projections marked down following early-2018 surprises.
  - China: projected to experience somewhat weaker growth in 2019 in the aftermath of recently announced trade measures.
- Emerging and developing economies: weaker outlook reflecting downward revisions for some large emerging market economies due to country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills.
- The weaker outlook for the euro area could pose challenges for some MENAP and CCA countries, particularly oil importers with strong trade ties.
- Medium-term risks remain skewed to the downside, reflecting the continued buildup of financial vulnerabilities and the possibility of shifts to unsustainable policies in the face of weaker growth prospects.

### Real GDP growth (2017–23) — selected series (as reported)
- World: 3.7 3.7 3.7 3.6
- Euro Area: 2.4 2.0 1.9 1.5
- United States: 2.2 2.9 2.5 1.6
- China: 6.9 6.6 6.2 5.9
- Russia: 1.5 1.7 1.8 1.5
- MENAP: 2.2 2.4 2.7 3.0
  - MENAP oil exporters: 1.2 1.4 2.0 2.3
    - of which: non-oil GDP growth: 2.4 2.3 2.4 3.1
  - MENAP oil importers: 4.1 4.5 4.0 4.3
- CCA: 4.1 4.0 4.0 4.2
  - CCA oil and gas exporters: 3.9 3.8 3.9 4.2
    - of which: non-oil GDP growth: 2.9 3.8 3.8 4.1
  - CCA oil and gas importers: 6.0 5.0 4.8 4.6

### Oil prices and outlook
- Oil prices rose above $75 a barrel in June 2018—the highest level since November 2014—reflecting the collapse in Venezuela’s production and unexpected outages in Canada and Libya.
- Prices dropped back to about $70 a barrel following the June 2018 decision by OPEC+ to increase production, but prices have increased recently due to geopolitical tensions.
- The impact of US sanctions on Iranian exports could further lift prices in the near term.
- Oil prices are expected to decline over the medium term due to increased production by US shale producers and OPEC+ members.
- Medium-term futures prices have firmed significantly relative to the baseline in the May 2018 Regional Economic Outlook: Middle East and Central Asia Update.

### Global financial conditions and market vulnerabilities
- Global financial conditions have started to tighten.
- Between March and September, the US Federal Reserve raised the federal funds target rate by 75 basis points and signaled additional tightening of 100 basis points by the end of 2019.
- With higher US interest rates and a stronger US dollar, pressure points emerged in some emerging market and developing economies.
- Capital flows to emerging market and developing economies weakened considerably since mid-April after a sharp rebound early in 2018, stabilizing somewhat in July.
- Policy reactions have been varied: exchange rate flexibility, interest rate hikes, and foreign exchange market intervention.
- Market sentiment remains vulnerable to uncertainties from global trade tensions and geopolitical developments (including Iran and Turkey).
- Risks that would further dampen the global recovery include systemic escalation of trade tensions and faster-than-anticipated monetary policy tightening in advanced economies, increasing the risk of a sudden reversal in global risk appetite.
- MENAP and CCA would be vulnerable, especially countries that rely heavily on international capital to meet external financing needs.

### Exposure of MENAP and CCA to emerging market contagion and Turkey
- Sovereign spreads of MENAP oil-importing countries rose by about 100 basis points between April and August, moving broadly in line with other emerging markets.
- MENAP-owned banks represent 7 percent of Turkish banking assets (as of March 2018), with shareholder equity of US$5.3 billion—largest share Qatari interests, followed by Lebanon, Kuwait, and Libya.
- Direct banking exposures represent less than 1 percent of these countries’ GDP on average.
- Trade channel example: a sustained 20 percent depreciation of the Turkish lira (as occurred between July and September) would suggest that the current account deficits of Djibouti, Iraq, the Kyrgyz Republic, and Libya could narrow by about 1 percent of GDP (assuming no change in import volumes). The overall trade impact is more indeterminate due to increased competitiveness of Turkish products.

### Escalating trade tensions — projected global effects and regional implications
- October 2018 WEO analysis of five escalation scenarios: combined impact could reduce the level of global GDP by more than 0.75 percent in the short term and about 0.4 percent in the long term.
- Impact would be relatively more pronounced for China, the United States, and emerging markets.
- Direct and immediate impact of recent and announced trade measures on MENAP and CCA likely small for most countries, though country-specific exposures exist (examples given: Bahrain, Georgia, Morocco).
- Indirect impacts through reduced demand from affected trading partners and global value chain effects could be significant over time.
- Key vulnerability channels for MENAP and CCA from a global slowdown: external demand, remittances, capital flows, commodity prices, and financing conditions.
- Oil exporters in the regions would be exposed to a slowdown in China, the euro area, and the United States due to concentration of oil exports to these countries and through lower oil prices triggered by weaker global growth.
- All countries would be hit particularly if investor confidence is affected or financing conditions tighten sharply.

### Export exposure by recipient (selected highlights from UN COMTRADE data, 2016; exports of goods, percent of GDP)
- MENAP Oil Exporters (selected numbers shown in table):
  - China: 0 2 6 6 6 1 9 3 4 5 (as presented)
  - Euro Area: 10 12 6 0 12 1 2
  - Turkey: 10 20 0 0 0 0 1
  - United States: 2 4 0 4 3 1 0 3 1
  - Combined: 13 7 11 17 10 2 16 8 9
- MENAP Oil Importers (selected numbers shown in table):
  - China: 0 0 0 0 0 1 1 0 1 0 10
  - Euro Area: 0 1 1 1 1 6 1 1 2 0 0 2 2
  - Combined: 0 3 2 6 11 7 12 4 0 1 24
- CCA (selected numbers shown in table):
  - China: 1 1 2 3 1 0 3
  - Euro Area: 3 1 3 3 1 2 1 1 0 10–20
  - Turkey: 0 4 2 1 1 2 1 5–10
  - United States: 0 0 1 0 0 0 0 3–5
  - Combined: 4 1 9 7 17 3 3 5 0–3

*Source: IMF staff synthesis of the Global Developments chapter (Regional Economic Outlook: Middle East and Central Asia).*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2018/november/en/menap/global-developments-en.pdf_