QNB: Iraq’s real GDP growth to rise to 6.3% in 2014

Updated 16 November 2013
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QNB: Iraq’s real GDP growth to rise to 6.3% in 2014

Iraq continues to expand its oil resources, but further economic diversification is needed, according to QNB Group. Following the Iraq war, oil production has expanded rapidly, resulting in a rise in per capita GDP from $1,790 in 2005 to over $6,300 in 2012 despite a difficult social context. However, Iraq’s economy continues to experience structural weaknesses, such as a small nonoil sector, a dominant public involvement in all areas of the economy and an underdeveloped business environment.
According to QNB Group, with Iraq’s economy continuing to be primarily driven by developments in the oil sector, economic growth is expected to remain strong in the short-term. However, there are risks to the macroeconomic outlook such as further social instability and weak policy implementation. These risks could translate into lower oil revenues, deteriorating the fiscal position and potentially escalating inflation levels.
Iraq’s macroeconomic performance over the past few years has been sound primarily on the back of a revival in oil production. In 2012, oil production averaged 3.1m barrels a day (bpd), the highest level in over 30 years. Real GDP has accelerated at an average growth rate of 6.4 percent during 2005-12 reflecting increased oil production and high oil prices.
However, high economic growth based on the expansion of the oil sector may not be sufficient to ensure continued prosperity. The lack of economic diversification to date makes Iraq’s economic growth sensitive to the fluctuations of international oil prices and could undermine macroeconomic stability. Hence, economic diversification could be a challenge for the Iraqi government both to create jobs and promote income-generating opportunities for the majority of the population. The International Monetary Fund (IMF) has been involved in supporting the government’s medium-term economic reform program, thereby helping the country improve fiscal sustainability and reduce its vulnerability to sudden drops in oil revenues.
Iraq continues to face development challenges despite the recent resurgence in economic growth. Indeed, there is a need to rebuild infrastructure and institutions, a task made difficult by the prospect of social instability. In addition, the impact of the war and sanctions, have all contributed to a deterioration in Iraq’s social indicators in recent years. For example, the infant mortality rate is one of the worst in the Middle East and North Africa region. Furthermore, school enrolment has declined over the past decade as a result of the low quality of and low returns to education.
During 2007-12, consumption among the lowest 40 percent of the population by income group grew only by 1.1 percent annually, lower than the average rate of consumption growth for the population as a whole (1.8 percent), suggesting that the income distribution is becoming more skewed.
Looking ahead, QNB Group expects Iraq’s real GDP growth to rise to 6.3 percent in 2014, as oil production increases further together with a rapid expansion in government services, trade and construction.

In addition, investment is set to grow strongly in several large oilfields and as infrastructure development gathers momentum.
However, the challenging social context, external shocks and a weak economic structure represent risks to Iraq’s short-term outlook.
Over the medium term, the key challenge to the Iraqi economy remains to develop its nonoil sector, which could provide for diversification, higher living standards, and better social conditions for the Iraqi people.


Oil prices rise after tanker attacks stoke Middle East tensions

Updated 27 min 12 sec ago
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Oil prices rise after tanker attacks stoke Middle East tensions

  • Second time in a month tankers have been attacked in the world’s most important zone for oil supplies
  • Washington blames Iran for Thursday’s attacks

TOKYO: Oil prices rose on Monday after US Secretary of State Mike Pompeo said Washington will take all actions necessary to guarantee safe navigation in the Middle East, as tensions mounted following attacks on tankers last week.
Brent futures had climbed 26 cents, or 0.4 percent, to $62.27 a barrel by 0314 GMT. They gained 1.1 percent on Friday.
US West Texas Intermediate (WTI) crude futures were up 17 cents, or 0.3 percent, at $52.68 a barrel. They rose 0.4 percent in the previous session.
Prices had jumped as much as 4.5 percent on Thursday after the attacks on two oil tankers near Iran and the Strait of Hormuz.
It was the second time in a month tankers have been attacked in the world’s most important zone for oil supplies as tensions increase between the United States and Iran. Washington blamed Iran for Thursday’s attacks, prompting a denial and criticism from Tehran.
“We don’t want war. We’ve done what we can to deter this,” Pompeo said in an interview with Fox News Sunday, adding: “The Iranians should understand very clearly that we will continue to take actions that deter Iran from engaging in this kind of behavior.”
Tensions between Iran and the United States have risen since US President Donald Trump pulled out of a deal last year between Iran and global powers that aimed to curb Tehran’s nuclear ambitions in exchange for sanctions relief.
Iran has repeatedly warned it would block the Strait of Hormuz if it cannot sell its oil because of US sanctions.
“Growing tensions in the Middle East remain a cause for concern as traders fear supply disruptions over an escalation toward militaristic conflicts,” said Benjamin Lu, an analyst at Phillip Futures in Singapore.
Also supporting prices were comments over the weekend by the Saudi energy minister, Khalid Al-Falih, that OPEC would probably meet in the first week of July and he hoped it would reach an agreement on extending oil output curbs.
“We are hoping that we will reach consensus to extend our agreement when we meet in two weeks time in Vienna,” Falih told reporters while attending a G20 energy and environment ministerial meeting in Karuizawa, northwest of Tokyo.
The Organization of the Petroleum Exporting Countries plus Russia and other producers, an alliance known as OPEC+, have a deal to cut output by 1.2 million barrels per day (bpd) from Jan. 1. The pact ends this month and the group meets in coming weeks to decide the next move.
US energy companies also cut the number of oil rigs operating for a second week in a row, with production growth expected to slow as crude prices fell to near their lowest levels of the year.