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The Middle East and North Africa (Mena) region was less sharply impacted by the global financial crisis than other areas, with overall GDP growth slowing to 2.9 per cent in 2009 and projected to grow more robustly at 3.7 per cent this year and 4.4 per cent in 2011, said a study released yesterday.
Growth among oil importing developing countries was an estimated 4.7 per cent in 2009 while growth in developing oil exporting countries eased to 1.6 per cent, reflecting production restraint and reduced oil revenues.
The World Bank said in its Global Economic Prospectus 2010 report that the region's recovery is dependent on the revival in global oil demand, stabilising oil prices and a rebound in key export markets. Despite a gradual withdrawal of fiscal stimulus measures, moderate advances in consumer and capital spending are expected to underpin firmer growth.
It said GDP in high-income GCC economies is estimated to have contracted by 0.6 per cent in 2009 following a firm 4.6 per cent in the preceding year, as the sharp slide in oil production and revenues dampened output.
The report said oil exporters were less adversely affected, but food import bills widened sharply. Hardest hit were countries in the Maghreb, as well as Jordan and Lebanon, which are large importers of both food and fuel – and Egypt (high food-import dependence).
The global economic crisis ended the oil boom that saw oil prices peak at more than $150 a barrel in mid-2008, and prices have settled into a range of $65-$80 a barrel, supported by Opec production cuts. As part of this effort, regional oil exporters scaled back production by nearly 10 per cent – 11 per cent among high-income producers and 7.3 per cent among the developing exporters of the region.
The combination of much lower prices and reduced output caused oil and gas revenues for all exporters to drop from $755 billion in 2008 to $485bn in 2009 – a decline equivalent to 30 per cent of the group's GDP.
For the developing exporters, the decline in revenues was less severe, but nonetheless a substantial 12.5 per cent of GDP. Current account surplus positions fell sharply across the region, from 25 per cent to 7.3 per cent between 2008 and 2009 for all exporters, and from 19.7 per cent to 3.3 per cent for developing oil exporters.
GDP for the diversified economies of Mena declined to 0.5 per cent growth in 2008, and it is anticipated to contract by a sharp 3.9 per cent in 2009, the deepest recession since the Second World War.
Slackening of economic activity and worsening labour conditions in Europe, as well as across the GCC economies over the course of 2009, caused the flow of worker remittances into the developing region to decline by 6.3 per cent for the year – in contrast to the strong gains of 23 and 11.3 per cent in 2007 and 2008, respectively. Foreign direct investment inflows to the diversified group in the region, which is increasingly sourced from the GCC economies, fell to 4.3 per cent of GDP in 2009 from 8.1 per cent a year earlier. These reflect GCC states scaling back current investment projects and putting earlier planned FDI endeavours on hold. Lower investment within the GCC portends fewer job opportunities for workers from these countries, lower remittances, and consumption in home markets.
The World Bank report said that prospects for both the developing and high- income economies of Mena should improve through 2011.
Growth is projected to increase to 4.4 per cent by that year, the same pace registered on average between 1995 and 2005. Though domestic absorption will be a continuing source of strength, the forecast for regional recovery is premised on a revival in global oil demand, firming oil prices, and a rebound in key export markets. Despite the gradual withdrawal of fiscal stimulus measures, moderate advances in consumer and capital spending are expected to underpin the strengthening of growth.
Oil prices are expected to remain broadly stable over the projection period, at about $75 a barrel. Stronger global activity should allow for crude oil and gas production to return to positive growth, implying moderate revenue gains. As a result, current account positions for developing oil exporters are projected to stabilise near five per cent of GDP by 2011. GDP growth for developing oil exporters should reach 3.1 and 3.7 per cent in 2010 and 2011, respectively.
GDP for the high-income GCC economies is anticipated to rise by 3.2 per- cent in 2010 and 4.1 per cent in 2011, as oil production firms and a higher average oil price help to restore revenues, albeit in more moderate increments. Current account surplus positions for the group are expected to rebound from 11 per cent of GDP in 2009 to 14.5 per cent by 2011.
The study, however, warned that despite favourable outlook for 2010-11, the region remains subject to substantial downside risks because a deeper and more protracted global recession cannot be ruled out. Within the region, political tensions remain a constant, tending to restrain international capital flows that might otherwise contribute to a deepening of capital markets and private investment. Further, reform efforts, some initiated during the crisis period, could receive less attention and commitment once economic conditions start to normalise.
The World Bank, however, ruled out a systemic crisis from Dubai World issue because Dubai has well-diversified holdings, but it may have an impact on the balance sheets of local and regional banks.
The global economic recovery that is now under way will slow later this year as the impact of fiscal stimulus wanes, financial markets remain troubled and private sector demand lags amid high unemployment, said the World Bank report.
It warned that while the worst of the financial crisis may be over, the recovery is fragile. Global GDP, which declined by 2.2 per cent in 2009, is expected to grow 2.7 per cent this year and 3.2 per cent in 2011.
Prospects for developing countries are for a relatively robust recovery, growing 5.2 per cent this year and 5.8 per cent in 2011 – up from 1.2 per cent in 2009. GDP in rich countries, which declined by 3.3 per cent in 2009, is expected to increase much less quickly – by 1.8 and 2.3 per cent in 2010 and 2011, respectively. World trade volumes, which fell by a staggering 14.4 per cent in 2009, are projected to expand by 4.3 and 6.2 per cent this year and in 2011.DUBAI Waheed Abbas
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