The Arab Spring has divided the economies of the Middle East into clear winners and losers, as unrest disrupts business in some countries while the resulting climb in oil prices benefits others, new estimates from the International Monetary Fund (IMF) show.
RELATED:UK's Hague: Libyan ceasefire must meet UN conditionsSyrian forces seal off Banias as sectarian tension mountsMore than 1,000 defy Egypt army order to leave square
Overall, the economies of the region are forecast to expand 4.1% this year, the IMF said in its World Economic Outlook published on Monday. But the oil exporting countries will see real gross domestic product increase 4.9% while non-oil economies will grow just 1.9%.In the IMF’s previous forecast, published last October, growth between oil and non-oil economies was about the same at 5% and 5.2%, respectively.
The October forecast was completed two months before mass protests in Tunisia ignited regional turmoil, shutting down factories and shops, driving away tourists and deterring investors, mainly in the region’s non-oil countries. But the unrest has not only largely steered clear of oil-exporters, it has benefited them by lifting oil prices. The May contract for benchmark Brent crude traded above $126 a barrel on Friday, its highest in 32 months
The IMF warned that economic conditions are more likely to deteriorate in the Middle East than improve over the course of the year.
“The key risks to this outlook are to the downsides,” the report said. “Depending on its duration and intensity, the domestic effects of political and social turmoil could be larger than currently expected, particular if sustained unrest spills over to additional countries in the region.”
Both oil and non-oil economies will likely face the threat of higher inflation, the IMF said. Consumer prices will rise 10% in 2011, up from 6.9% in 2001. Some of the region’s highest inflation will be in the hot-spots of Iran (22.5%) and Egypt (11.5%), according to the IMF’s outlook.
JPOST VIDEOS THAT MIGHT INTEREST YOU:
The inability of the region’s policymakers to ensure enough economic growth to create jobs and to contain inflation are widely believed to be key factors behind the turmoil that has forced the leaders of Tunisia and Egypt to step down and is threatening the rule of others in Libya, Syria and Yemen.
The IMF forecast suggests governments across the region will have trouble addressing popular economic grievances in the near term. Economic growth for non-oil economies will pick up in 2012 to 4.5%, matching their 2010 performance, but historically rates like that haven’t done enough to create jobs and reduce income gaps without substantial reforms.
The Middle East’s woes come amid a worldwide economic recovery, though one laden with risks. The IMF sees global growth averaging 4.5% this year and next, with higher oil prices and Japan’s earthquake having only a “mild” impact on growth. The Middle East’s economic performance, however, remains laggard, with GDP growth trailing the 6.5% average for emerging market economies.
Among the Middle East economies hit hardest by political unrest are Egypt, which the IMF had predicted on October would grow 5.5% in 2011 but is now expected to eke out growth of no more than 1%, and Tunisia, whose outlook has been slashed 1.3% from 4.8%. Both countries ousted their long-time leaders but have yet to restore order as protests and strikes continue.
Some countries that have avoided mass unrest also have weaker growth prospects. Iran, will show nil growth in 2011 as consumers spend less after government subsidies on basic commodities were slashed in December. In Lebanon, whose government has been paralyzed by a political deadlock sparked by the Shi'ite Islamic movement Hezbollah’s bringing down the government, GDP will expand 2.5% this year, half the IMF’s previous projection.
Meanwhile, Saudi Arabia, with the world’s biggest petroleum reserves and to date little bothered by protests, will see GDP jump 7.5% in 20011, up from 4.5% in the IMF’s previously forecast. The smaller economies of Qatar and Kuwait will also show stronger growth than earlier forecast.
Said Hirsh, Middle East economist at London-Based Capital Economics, noted that the oil boon has enabled petroleum exports to shower their economies with infrastructure spending, job creation and subsidies.
“The Arab Spring prompted the Gulf countries to spend a lot, especially Saudi Arabia. So, our view on the Gulf economies is generally very positive,” Hirsh told The Media Line. “If you move to the poorer countries, the picture is very different: They don’t have the financial resources to spend their way out of problems.”
Inflation in the Middle East is being stoked mainly by higher food prices, the IMF said. The region is a large net importer of food while the IMF’s Food Price Index has risen 41% since mid-2010 to a record high.
The IMF said the bad global weather conditions that have lifted prices are likely to correct themselves this year, but it warned that the optimism could be frustrated by restrictions on exports, low food stocks and growing demand. In the meantime, the inflation further exacerbates the Middle East divide as richer governments cushion themselves against its effects.
Ultimately, however, the Arab Spring could reward the region’s economies
with improved growth prospects, if the turmoil results in more
democratic, transparent governments able to undertake badly needed
“The view on poor countries in the near term is bad. In the medium term,
they could continue to do poorly or do extremely well,” Hirsh said.
“They have every chance of doing well if they develop politically in the
Join Jerusalem Post Premium Plus now for just $5 and upgrade your experience with an ads-free website and exclusive content. Click here>>