Achi news desk-
(Bloomberg) — The International Monetary Fund expects OPEC and its partners to begin gradually increasing oil output from July, a transition that is poised to catapult Saudi Arabia back into the ranks of the world’s fastest-growing economies this year next.
“We assume that a full reversal of cuts occurs at the beginning of 2025,” said Amine Mati, the head of the lender’s mission to the kingdom, in an interview in Washington, where the IMF and the World Bank are holding their spring meetings.
The view explains why the IMF is turning more bullish on Saudi Arabia, whose economy shrank last year as it led the OPEC+ alliance alongside Russia in production cuts that squeezed supplies and pushed up crude prices. In 2022, record crude output propelled Saudi Arabia to the fastest expansion in the Group of 20.
Under the latest outlook released this week, the IMF raised next year’s growth estimate for the world’s biggest crude exporter from 5.5% to 6% – second only to India among major economies in growth that would be among intervals the fastest in the kingdom over the last decade. .
The fund predicts that Saudi oil output will reach 10 million barrels per day in early 2025, from what is now a near three-year low of 9 million barrels. Saudi Arabia says its production capacity is about 12 million barrels a day and has rarely been pumped as low as today’s levels in the past decade.
Mati said the IMF slightly lowered its forecast for Saudi economic growth this year to 2.6% from 2.7% based on actual figures for 2023 and extended production curbs to June. Bloomberg Economics forecasts an expansion of 1.1% in 2024 and assumes that the output cuts will remain until the end of this year.
Escalating hostilities in the Middle East are the backdrop for a possible policy shift after oil prices hit $90 a barrel for the first time in months. The Organization of the Petroleum Exporting Countries and its allies will gather on June 1 and some analysts expect the group to begin to loosen the curbs.
Having sacrificed sales volumes to support the oil market, Saudi Arabia may instead choose to pump more as it faces years of fiscal deficits and with crude prices still below what it needs to break even’ the budget.
Saudi Arabia is spending hundreds of billions of dollars to diversify an economy that still depends on oil and its close derivatives – petrochemicals and plastics – for more than 90% of its exports.
The restrictive monetary policy of the United States will not necessarily drag on Saudi Arabia, which usually moves in lockstep with the Federal Reserve to protect its currency peg to the dollar.
Mati sees a “negligible” impact from slower interest rate cuts by the Fed, given the structure of Saudi banks’ balance sheets and the ample liquidity in the kingdom thanks to high oil prices.
The IMF also expects “growth momentum in the non-oil sector to remain strong” for at least the next few years, Mati said, driven by the kingdom’s plans to develop industries from manufacturing to logistics.
The kingdom “has achieved many transformative reforms and is making many of the right moves in terms of the regulatory environment,” Mati said. “But I think it takes time for some of those reforms to come through.”
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