June 2010 - According to the World Bank’s latest Global Economic Prospects 2010, the Middle East and North African economy looks poised for recovery from the lows of the global financial crisis and recession, despite gathering headwinds in the international environment. There are signs of recent increases in hydrocarbon revenues, merchandise exports, and the beginnings of spillover to crude oil- output and industrial production growth.
The global economic recovery continues to advance, but Europe’s debt crisis has created new hurdles on the road to sustainable medium term growth.
“Developing countries are not immune to the effects of a high-income sovereign debt crisis,” said Andrew Burns, manager of global macroeconomics at the World Bank. “But we expect many economies to continue to do well if they focus on growth strategies, make it easier to do business, or make spending more efficient. Their goal will be to ensure that investors continue to distinguish between their risks and those of these high-income countries.”
The Middle East and North Africa shows tentative signs of recovery in 2010
The outlook for the Middle East and North Africa (MENA) region will continue to be driven by oil prices and economic activity in the European Union (EU), the region’s main trade partner. The oil price collapse at the onset of the financial crisis together with Organization of the Petroleum Exporting Countries (OPEC) production restraints significantly reduced oil revenues, cutting into intra-regional foreign direct investment flows, remittances, and tourism receipts.
However, export volumes and values are forecast to rebound, rising by 2.0 and 13.5 % respectively in 2010. Moreover, the regional recovery is projected to strengthen, with growth firming from 4.0 % in 2010 to 4.3 and 4.5 % in 2011 and 2012, respectively.
Low-and-middle-income oil exporters’ revenues halved. Algeria, Iran, Syria and Yemen collectively suffered a halving of hydrocarbon revenues in 2009, as exports declined 40 % from $212 billion in 2008 to $125 billion in 2009. For countries highly reliant on oil revenues to finance longer term infrastructure and housing projects (Algeria); subsidize current consumer outlays, or build and maintain the capacity for exporting larger quantities of Liquefied Natural Gas (Yemen), the virtual collapse of incomes carried a toll on economic growth.
Events in Europe over April-to -June 2010, grounded in the sovereign debt difficulties of Greece, Spain and Portugal, and the consequent EU/International Monetary Fund (IMF) Stabilization Package for the Euro Area, have dampened several of the emerging trends of importance for MENA region.
The euro’s decline is a mixed development: for the regional oil exporters, where receipts are denominated in dollars, but where the bulk of procurement of capital and consumer goods is transacted with Europe in Euros, exporters enjoy a boost to the purchasing power of exports. For the diversified economies of the region, the euro’s decline carries less dramatic effects, as both foreign receipts and outlays tend to be euro-based.
The diversified economies hit hard by the recession in Europe. The more diversified economies of the region, including Egypt, Jordan, Lebanon, Morocco and Tunisia, were directly affected by the recession in key export markets in the European Union, and to a lesser degree, the United States, carrying exports to sizeable decline over the course of 2009. Signs of some recovery are now apparent in the early months of 2010.
- The regional recovery is projected to strengthen, with growth firming from 4.0 % in 2010 to 4.3 and 4.5 % in 2011 and 2012, respectively.
- Export volumes and values are forecast to rebound, rising by 2.0 and 13.5 % respectively in 2010.
- Worker remittance inflows reached an all time high in 2008 at $33.8 billion representing 4 % of regional GDP.
- Remittance flows declined 6 % in 2009 to $31.8 billion, or to 3.8 % of regional GDP.
- Tourism revenues also established all-time highs in the region during 2008 at $35.1 billion, or 4.2 % of GDP.
- Foreign Direct Investment (FDI) flows are estimated to have declined sharply in 2009, by 32 % to $19.2 billion in the year.