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World Bank: MENA economic growth will remain below average until 2011

Global Arab Network - - Hannan Taha

Monday, 22 June 2009 21:39

The World Bank expects economic growth in the Middle East and North Africa to slow this year to 1.6% and will remain below its average rate of 4.5% until 2011.

The slow due to lower oil prices and weaker demand from European markets, which hurt growth MENA region, the World Bank said.

Annual growth in the region’s gross domestic product has averaged 4.5 per cent historically, and it reached 5.6 per cent in 2008.

The impact of the current economic slowdown on individual countries in the region will vary depending on their trade links to European markets, their reliance on oil revenues and their fiscal and external account positions, the World Bank said in its regional outlook.

The Middle East and North Africa account for more than a third of global oil production. Oil prices plummeted from a high of around US$147 a barrel in July to a low of about US$34 a barrel in December. Prices are now at around US$69 a barrel. Oil producing Gulf states are increasing state spending to bolster their economies and tapping bond markets to support businesses.

“Those elements which supported growth over the last five years are anticipated to unwind: oil prices are projected to rise only modestly, averaging $66 in 2011; the European export market will remain flaccid; and slowing of services receipts and remittances will exact a toll on growth for both developing oil exporters and the more diversified economies of the region,” the bank said.

Oil and gas revenue for the Gulf Cooperation Council, an economic and political group which includes Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Oman and Qatar, dropped from US$670 billion in 2008 to an estimated US$280 billion during 2009, a decline equivalent to 38% of the group’s gross domestic product.

Revenue for the developing oil exporters of the region; Algeria, Iran, Iraq, Syria, and Yemen declined from US$320 billion to an estimated US$140 billion, equivalent to 28% of GDP, the bank said.

Saudi Arabia and Kuwait will fall into recession in 2009 and spillovers from lower oil revenue may damage other Middle East countries through reduced investment, remittances and tourism, the World Bank said.

Jordan and Lebanon, which have large current-account deficits “face the largest risk of a balance of payments crisis in a protracted recession scenario,” the World Bank said in the report.

Growth in Jordan and Lebanon will slow to 2.5% this year, according to the World Bank’s forecasts.

The region’s banking sector has weathered the crisis relatively well, in part because of limited direct exposure to subprime mortgages and related asset-backed securities. However, a Kuwaiti bank suffered significant losses in late 2008 from trading in currency derivatives. In response, many banks across the region tightened lending standards, and, in some countries, reduced lending directly, the report said.

GCC equity prices in dollar terms dropped by some 58 per cent between September 15, 2008, and March 12, 2009, a period during which almost all bourses registered sharp declines. Over the same period, equity prices in the UAE plummeted by 70 per cent, compared with a decline of 55 per cent for all emerging markets, the bank said.

The World Bank also slashed its outlook for developing nations' economies, estimating growth at a meagre 1.2% this year while warning more measures were needed for a recovery to take hold.

The forecast amounts to steep drops from the previous two years, with developing countries having seen 8.1% growth in 2007 and a 5.9% expansion in 2008.

Without China and India, the bank said, output would shrink 1.6% this year.

The economic weakness in the developing world after recent years of robust growth heightens the risks of social unrest and deepening poverty, the 185-nation institution said.

Global Arab Network

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Last Updated on Monday, 22 June 2009 21:49

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