Saudi Arabia caught in ‘perfect storm’ - by Katy Barnato

The Middle East's largest economy faces dwindling economic growth and a sharp drop in government revenues, hit by a toxic mix of tumbling oil prices, regional conflicts and the strength of the U.S. dollar, regional experts warned.

On Wednesday, the International Monetary Fund (IMF) warned that the large decline in oil prices and sharp drop in energy revenues would see the economy slow both this year and next in Saudi Arabia.

It forecast that real gross domestic product (GDP) would grow by 2.8 percent in 2015 and 2.4 percent in 2016, down from 3.5 percent last year. Oil revenue was seen contributing 24.2 percent to GDP this year, down from 32.6 percent in 2014.

"Risks to the growth outlook are tilted to the downside," the IMF said in Wednesday's report, which followed a visit by its economists to Riyadh in May.

"The main downside risks are the possibility of lower oil prices due either to weaker global demand or increased supply, the possibility that domestic reforms do not generate a growth dividend and create a more diversified and self-sustaining private sector that creates jobs and reduces inequality and an escalation of regional tensions that undermines confidence and investment," it continued.

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Global Economy: An Emerging 'Perfect Storm?' 4 Key Trends To Watch - by Jack Rasmus

"With the stock market continuing to seesaw, much like a "perfect storm" at sea,  the consequence of converging bad weather fronts, significant global trends have begun to intensify, and converge, on the global economy during these past weeks."

That convergence has already begun to "come ashore" and impact US equity markets, and could likely do so even more intensely in the weeks to come. Effects on the US real economy and policy in the short to medium term are also inevitable. The convergence is still in its early phase, but its initial US "landfall" is already evident.

The IMF, the European business press and other sources - private and official - are now all warning of the growing risks of deflation on the horizon. When deflation occurs, a host of nasty things economic follow: consumers slow their spending (already a problem in Europe), businesses reduce investment causing unemployment to stagnate or even further rise (another nagging Euro condition), and debt actually rises in real terms (and we know all about Euro debt).

Deflation is probably a better indicator of a weakening "real" economy longer term than is GDP, given the limits of that latter term in measuring real trends.

Read more: An Emerging Global 'Perfect Storm?' 4 Key Trends To Watch - Seeking Alpha