The cost of Arab Spring turmoil to the economies of the Middle East and North Africa continues to rise while the gains from higher oil prices are diminishing, the International Monetary Fund (IMF) said on Tuesday as it lowered its forecast for gross domestic product growth in 2011 and 2012.
While the region’s economies will expand by 4 percent this year - slightly less than the 4.1% the Washington DC-based organization had predicted in April - growth in the countries hardest hit by Arab Spring unrest will be considerably weaker. Egyptian GDP will grow at a quarter of the pace it grew in 2010, Syria’s economy will shrink and Tunisia’s will show nil growth.
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While high oil prices continue to power the economies of the Gulf, they will begin
feeling the impact of slower world demand for petroleum in 2012. GDP growth for oil exporters will slow from a projected 4.9% this year to 3.9% in 2012. As a result, GDP growth across all Middle East and North Africa (MENA) economies will decelerate to 3.6% next year, the IMF said.
The IMF warned that the situation may deteriorate amid a slowing world economy and continued political uncertainty in the region.
“The outlook is subject to large downside risks,” it said in its World Economic Outlook report. “The political turmoil has seen risk premiums rise and private financing and tourism receipts fall… Any intensification of political crises would exacerbate the economic plight of the region.”
The latest forecast came as the IMF lowered its outlook for global growth amid signs that the US recovery was stalling and Europe was grappling with its massive fiscal crisis. The global economy will expand 4% each year in 2011 and 2012, down from about 4.5% annually in its April projection.
While emerging economies led by China, will continue to grow smartly, it won’t be
sufficient for global oil demand to keep growing at previous levels, the IMF said. A spike in oil demand in 2010 as the world economy recovered from recession was followed by lower-than-expected demand in the first half of 2011, it noted.
Oil prices peaked in April at $120 a barrel, but pulled back to $100 or less in subsequent months, a level the IMF signaled would probably stay unchanged in the medium-term because of slowing global growth. Brent crude for November settlement was up $1.84 at $110.98 a barrel on Tuesday after reaching a one-month low the day before.
While the Organization of Petroleum Exporting Countries (OPEC), whose members include MENA’s Saudi Arabia, Iraq and Iran among others, will probably step up production in the second half of this year, but in 2012 non-OPEC output should probably begin rising again and pick up any slack.
Saudi Arabia GDP growth will be slower next year, decelerating from a projected 6.5% in 2011 to 3.6% in 2012.
Arab Spring turmoil remains the biggest factor in the region, where it has interrupted normal business, deterred tourists and scared away investors.
In Syria, where President Bashar Al-Assad has failed to put down unrest after six months, GDP will probably shrink 2% this year, making it the worst performer in the region. In April, not long after protests emerged, the IMF had forecast Syria’s economy expanding 3% this year.
In Tunisia, where the Arab Spring was born last December, the economy will see nil growth this year, the IMF said, revising downward its previous projection of 1.3%. In Egypt, where President Husni Mubarak was forced out of office in February and replaced by an interim military government, output will expand 1.2%, slightly better than the IMF was forecasting in April.
Liz Martins, senior Middle East economist for HSBC, said some parts of Egypt’s
economy have held up well during the unrest, particularly oil exports and Suez Canal revenues. But investment has fallen and consumer spending has been hurt by what she said was a loss of about 600,000 jobs due to the unrest.
“They had some positive growth in the second quarter after contraction in the first,” Martins told The Media Line. “Going forward, unfortunately, the timing is difficult because we are going into a period of global downturn and a lot of Egypt’s tourism and exports are dependent on Europe.”
Farouk Soussa, chief Middle East economist at Citigroup, believed it was premature to say how the economies hit by the Arab Spring will fare.
“If you look at countries like Tunisia, Egypt or Bahrain, they’re still fairly unstable
and therefore the economic environment remains depressed. How it will develop depends on economic policy. There’s a big question mark on the extent of populism,” Soussa told The Media Line.
Many of the MENA region governments have stepped up spending this
year, increasing subsidies, public sector salaries and other measures
aimed at pacifying their restive populations. Swelling oil profits have
enabled exporters to fund such programs, but others now have to cope
with widening budget deficits. The IMF warned that increased borrowing
to pay for the extra spending will make it harder for the private sector
to raise capital for expansion.
Meanwhile, many of the countries
of the region are seeing their current account deficits widen as
tourism revenue and remittances from citizens working abroad decline.
Among the countries with the biggest projected current account deficits,
Lebanon’s will likely reach 14.7% of GDP this year, the IMF said.
Jordan’s will probably reach 6.7% and Syria’s 6.1%.