The protest-beleaguered Middle East and North Africa (Mena) region could witness real GDP growth of 4.1 per cent this year and 4.2 per cent in 2012, but its aggregate economic recovery will continue to face uncertainties, the International Monetary Fund (IMF) reported.
In its latest outlook for the global economy, the IMF mentioned that political discontent, high unemployment rate and rising food prices – factors that have ignited months of social unrest – will likely dampen short-term growth for some Mena economies.
“The Mena region weathered the global [financial] crisis relatively well, and while the recovery is now proceeding, economic growth varies widely across the region,” according to the report published this month.
But while some countries in the region grapple with the political uncertainties besetting them, oil exporting nations will continue to foster recovery as governments initiate public spending, thanks to rising crude prices and increasing global demand that have kept petrodollars pouring in.
Oil exporting nations, consisting of Algeria, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, Sudan and the UAE, will see a collective growth of five per cent this year with Qatar emerging as the most robust economy projected to post a massive real GDP of 20 per cent.
The
IMF attributes Qatar’s bullishness to the continued expansion in its natural gas production, as well as its large investment expenditures.
Libya, one of the world’s significant oil exporters, has been excluded from the IMF’s report due to the country’s uncertain political situation. The bank noted, however, that crude production disruptions from the North African state will pose little effect to the global oil supply chain as
other suppliers within the Organization of Petroleum Exporting Countries (Opec) cartel will likely supplement the Libya gap by increasing their own output in 2011.
Meanwhile among the oil importing nations,
Egypt is seen suffering the heaviest blow from weeks of political turmoil. Its GDP could drop to a meagre one per cent this year, down sharply from 5.1 per cent in 2010. By 2012, the country’s fiscal growth will likely rebound to four per cent, the IMF noted.
“Disruptions to [Egypt’s] tourism, capital flows, and financial markets are expected to be temporary. In Tunisia, growth is projected to slow to 1.3 per cent in 2011, as the expected decline in tourism and foreign direct investment harms other sectors of the economy,” the bank said.
Taming inflation, solving unemployment should be priority
Soaring inflation and “chronically high” unemployment rate are issues that governments in the region should tackle with utmost urgency as these could further hamper fiscal growth, the IMF reported.
For 2011, the bank estimates that consumer price inflation in the Mena will jump to nearly 10 per cent, led by sanctions-hit Iran where fuel subsidies have been reduced substantially.
“Depending on its duration and intensity, the domestic effects of political and social turmoil could be larger than currently expected, particularly if sustained unrest spills over to additional countries in the region,” the bank said.
During the recent global financial crisis, however, the region’s fiscal policy has played a key role in cushioning its population from the blows of soaring prices of basic commodities. According to the IMF many countries such as Jordan, Kuwait and Tunisia resorted to increasing food and fuel subsidies; Sudan, Syria and Yemen increased social transfers; Egypt, Jordan, Saudi, Sudan and Yemen expanded civil service employment or salaries; while Bahrain and Kuwait introduced direct cash transfers.
However, high unemployment especially among young people and the educated continues to plague most countries across the region.
“The fact that unemployment has remained high for so long suggests that the problem is largely structural – stemming from skill mismatches, labour market rigidities and high reservation wages,” the IMF wrote.
The bank noted that the solution to the region’s unemployment concern requires a combination of permanently higher and inclusive economic growth and reforms to improve the responsiveness of labour markets.
‘Global recovery gaining strength’
Despite the Mena turmoil that has driven oil prices to reach the above
$100-per-barrel mark and threatened a fragile world economy, the IMF believes that global recovery is still gaining strength.
While its progress may not beat the five-per-cent growth rate recorded in 2010, global economy is anticipated to still post an increase of 4.4 per cent this year and 4.5 per cent in 2012.
“Financial conditions continue to improve, although they remain unusually fragile. In many emerging market economies, demand is robust and overheating is a growing policy concern. Developing economies, particularly in sub-Saharan Africa, have also resumed fast and sustainable growth,” the bank said.
Advanced economies are expected to grow by about 2.5 per cent while emerging and developing countries will likely expand by 6.5 per cent this year. The IMF stressed, however, that global recovery will continue to face surmounting challenges such as rising food and commodity prices that could threaten poor households and intensify social tensions, particularly in the Mena.
Likewise unless it is immediately and properly addressed, the issue of high unemployment rate across various regions worldwide will continue to remain as a roadblock to global recovery. Quoting statistics from the International Labour Organisation, IMF said around 205 million people are still looking for jobs with the unemployment rate more severe in advanced economies.
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