In its latest World Economic Outlook (WEO), published in April, the International Monetary Fund (IMF) maintained its global growth forecast at 4.4% for 2011 and at 4.5% for 2012, while cutting its real GDP growth forecasts for the MENA region in both 2011 and 2012 by 0.5% to 4.1% and 4.2% respectively. The reduction in the MENA region growth forecasts was a response to the spreading social unrest in the region, rising sovereign risk premiums, and increasing import prices for commodities. Evidence of this contraction is already occurring in some countries as witnessed in the Egyptian economy which is estimated to have contracted by 7% in the first quarter of 2011. Meanwhile, Qatar is expected to show the largest Real GDP growth in the world for 2011 at 20.0%, according to a QNB Capital review of the WEO.
Real GDP for 2011-12 is projected to expand by around 2.5% in advanced economies and by 6.5% in emerging and developing economies. One of the main indicators for a global recovery and projected growth is coming from strong retail sales in emerging market economies and advanced economies. The downside risks to the global outlook are mainly due to geopolitical uncertainty.
The MENA region economic performance is likely to diverge between oil exporting and importing countries in 2011. Oil importing countries have felt the greatest impact from recent events, with social unrest dampening growth. The IMF therefore expects that growth in oil importing countries will slow to 1.9% in 2011. Assuming that the unrest is temporary, growth for oil importers will recover to 4.5% in 2012.
In oil exporting countries, high oil prices and external demand will boost production and exports. Higher oil revenues are likely to lead to higher spending on social programmes. Qatar will lead the growth in this group – as it continues expansion in natural gas production and makes large investments in infrastructure.
Although events in Libya have substantially reduced oil production in the country, this production has largely been replaced by other producers within the region. Therefore, overall MENA GDP will not be negatively impacted by the fall in Libyan production.
The economic impact is not confined to the countries that are experiencing the greatest unrest. Increased instability across the region will lower the appetite for investment. Sovereign risk premiums have risen across the region, according to the IMF. This will drive up borrowing costs, acting as a drag on economic activity.
The IMF also cited higher than expected commodity prices as a reason for cutting its growth forecasts. As non-oil commodity prices are expected to continue their upward trend in 2011, negatively impacting MENA countries as they are importers of non-oil commodities. Rising costs of industrial raw materials will therefore constrain investment. Additionally, higher food prices will reduce disposable incomes, limiting private consumption.