GCC Knowledge Note

Global GDP growth remains lackluster, at an estimated 2.4 percent in 2015, down from 2.6 percent in 2014. This performance reflects sluggish world trade, particularly merchandise trade, and persistently weak commodity prices. These trends are contributing to subdued inflation in advanced economies and commodity-importing emerging market and developing economies (EMDEs), while consumer prices are elevated or accelerating in many commodity-exporting EMDEs. Despite the headwinds to growth, financial conditions in EMDEs have improved somewhat since the start of 2016. Asset prices and capital flows have rebounded, while bond spreads have receded. EMDE exchange rates have rallied somewhat against the U.S. dollar after plunging during the past three years. Oil prices have risen from January lows, although they remain low versus historical levels due to bothsupply and demand factors. Economic performance in large emerging markets—including multiyear contractions in Brazil and Russia and continued rebalancing in China could set back any improvement in the pace of global growth in 2016. With their high dependence on the oil sector for government and export revenues, the prolonged period of low oil prices continues to have detrimental impacts on GCC economies. Budget rebalancing is underway, but further fiscal consolidation is likely in the medium term given that oil prices are expected to recover only gradually. Slowing growth in GCC countries stands to generate negative pillovers for oil-importing countries in the Middle East and North Africa through trade, investment, and remittances channels.