The IMF has cut its 2012 real GDP growth forecast for the MENA region from 4.2% to 3.6%. An analysis by QNB Capital shows that the gloomier outlook is largely limited to oil importing countries.
The economic outlook for the global economy has deteriorated in recent months. This is largely due to weakness in advanced economies, which are struggling with high sovereign debt and unemployment and slow growth. The IMF’s bi-annual World Economic Outlook provides a useful benchmark of the changing economic views.
The IMF’s latest forecasts show a two-track MENA region. The oil exporting countries, particularly the GCC, are continuing to grow rapidly as a result of strong oil prices and high levels of government spending. The IMF’s oil price forecast of US$103/barrel in 2011 means that their aggregate current account balance will be 15% of GDP, nearly double what the IMF was forecasting a year ago.
The outlook for the oil importing MENA countries has, however, deteriorated significantly. As recently as October 2010, the IMF was forecasting that this group of countries would outpace the oil exporters in 2011 with growth of 5.2%. It now says their growth this year will only be 1.4%, and it has further slashed their forecast growth for 2012 from 4.5% in its April 2011 forecast to just 2.6%.
QNB Capital says that there are three main reasons for this weaker outlook. Firstly, high oil and commodity prices will act as a drag on their economies. Secondly, the ongoing weakness in Europe has hit them hard. The oil importing countries in North Africa and the Levant are closely linked to European economies through tourism, trade and remittance flows.
Thirdly, the most significant factor has been the disruption caused during the Arab Spring. These changes may boost growth in the medium term, if new governments are able to build institutional frameworks and implement policies that encourage investment and growth prospects.
In the short term, however, the disruptions have compounded existing economic problems. Unfortunately this will make it more challenging for governments to meet popular demands for employment and improved living standards.
A year ago the IMF was forecasting that Syria and Egypt would both achieve 5.5% growth in 2011. Now, its revised forecasts show Egypt growing at just 1.2% and Syria experiencing a 2% contraction. It also forecasts weak growth for both countries in 2012, although it sees Tunisia picking up to 3.9% after no growth in 2011, as the situation there stabilises.
The IMF has temporarily suspended its forecast for Libya, and has also excluded it from its aggregate forecast of oil exporters. The cessation of oil production for much of the year will have cut GDP sharply, and the conflict will have stalled most other economic activity. The Economist Intelligence Unit forecasts for Libya show that real GDP will shrink by 28% this year, rebounding in 2012-14 at an average growth of 12%, as oil production and the non-oil economy recovers.
In terms of inflation, the IMF forecasts relatively moderate levels for the region, averaging below 6% in 2011-12 for most countries. The exceptions are Iran, Sudan and Egypt which are all expected to see double-digit inflation.
As regards Qatar, the IMF continues to forecast that it will be the strongest growing economy in the region in 2011, at 18.7%, and 6% in 2012. QNB Capital’s own forecasts are slightly higher, at 21% and 10.2% respectively.
QNB Capital argues that, in spite of temporary weakness in some MENA countries, the medium-term economic outlook is positive for the whole region.
Demographic trends are producing large working-age populations with low dependency ratios, a situation which typically boosts countries’ growth. Investment, tourism and remittances from the booming GCC countries will spur growth in the oil importing countries. Political stability and sound fiscal policies will be key to supporting confidence and encouraging foreign investment.