MENA stalled
Uncertainty continues to dampen growth prospects for the region, Niveen Wahish reports on the findings of the “World Economic Outlook”
source: WEO
“A sea of troubles”, is how the International Monetary Fund (IMF) described the Middle East and North Africa (MENA) region in its World Economic Outlook (WEO) report. Published this week, WEO set modest growth targets for the region, at 4.2 per cent of GDP in 2012 up from 3.5 per cent last year. And it estimates a 3.5 per cent growth for 2013.
The region’s oil importers, including Egypt, are the worst off. In fact, the IMF predicts Egypt will grow at 1.5 per cent this year, which is even lower than last year’s 1.8 per cent rate. In 2013, the country’s economy will likely grow at 3.3 per cent. Egypt fares the worst out of all the region’s oil importers, which include Morocco, Tunisia, Jordan and Lebanon. Oil importers on the whole will grow at 2.2 per cent this year, and 3.6 per cent next year.
Low growth rates reflect the effects of social unrest, resulting from the 2011 revolutions. “Regional spillovers from the social unrest have been large, particularly on tourism and capital flows, which have declined throughout the region,” the report said.
But the trouble is not only domestic. High oil prices, coupled with lower trade and remittance flows reflecting ongoing problems in Europe, are major constraints, the WEO showed. It added that “a more intense recession in Europe could further undermine the already shaky tourism sector, with follow-on effects to the rest of the economy.”
For oil exporting-counties in the region, the prospects are slightly better. For those countries, the WEO predicts a growth rate of 4.8 per cent this year and 3.7 per cent next year. Nonetheless, any drop in oil prices as a result of a global slowdown triggered by the European crisis, could harm those forecasts.
In fact the WEO calculations show that a deterioration of the economic situation in Europe could have “the largest spillover effect for any region outside Europe”, mainly because of the effect on oil prices. “Government expenditures [in oil-exporting countries] have risen to such a degree that a relatively modest fall in the price of oil can lead to budget deficits,” the report read.
Oil prices could further increase on the back of intensified concerns about an Iran-related supply shock, any further unrest in the region or an actual disruption in oil supplies. The report also says that any negative developments in Iran are “projected to be offset by increased oil production in Iraq and Saudi Arabia, and a bounce back in Libya.”
The WEO stresses that the region faces serious policy challenges, namely to ensure economic and social stability, and to place public finances on a sustainable footing. “Increased spending on fuel and food subsidies (with Iran as an exception), along with pressures to raise civil service wages and pensions, is straining public finances particularly for oil importing economies, which will not be sustainable over the medium term,” the report read, adding that “increased targeting of subsidies, and fuel subsidy reforms in particular will help ease the strain.”
More broadly, the report recommended that “the social disruption highlights the need for an inclusive medium term growth agenda that establishes strong institutions to stimulate private sector activity, opens up greater access to economic opportunities and addresses chronically high unemployment, particularly among the young.” Further, it proposes a “reorientation of fiscal policies toward poverty reduction and the promotion of productive investment.”
For oil exporters, the WEO added “governments need to seize the opportunity presented by high oil prices to move toward sustainable and more diversified economies.”
The MENA region’s growth rates do not fall far from global prospects, which are also depressed. The WEO projects global growth will drop from about four per cent in 2011 to about 3.5 per cent in 2012, because of weak activity during the second half of 2011 and the first half of 2012. Growth will continue to be slow in the US, but Europe is worst off. The overall global growth prospects is balanced by better performance in emerging and developing economies, particularly developing Asia namely China, India, Indonesia, Malaysia, Philippines, Thailand and Vietnam, which grow at around six per cent. As a whole, sub-Saharan Africa is projected to do well, with growth rates at around five per cent.
