Cairo, Egypt David Rosenberg (The Medi – Economic growth in the Middle East and North Africa will likely hold steady this year, even as the rest of the world economy slows, the International Monetary Fund (IMF) said on Tuesday. However, the region’s relative strength is mainly because 2011 was such a lousy year.
The economies of the region stretching from Morocco to Iran will expand 3.2 percent this year, a fractional improvement over 2011′s 3.1 percent, the Washington-based IMF said in its semi-annual World Economic Outlook. Growth is being supported by oil exporters, who are enjoying triple-digit petroleum prices, as well as the return of Libya, whose economy came to standstill during last year’s civil war.
But the outlook for the Middle East and North Africa (MENA) is basically a bear. The world economy is stalling because of European debt woes, while locally the turmoil of the Arab Spring continues to weigh on growth for economies such as Egypt and Syria. MENA will not only underperform the world’s emerging economies, which are forecast to grow 5.4 percent this year, but lag behind the world economy as a whole, which will expand 3.3 percent, according to IMF figures.
That will continue into 2013, when the pace of MENA growth accelerates to 3.6 percent but continues trailing the global average and that for emerging economies.
“Most advanced economies [will] avoid falling back into a recession while activity in emerging and developing economies slows from a high pace,” the IMF said. “However, this is predicated on the assumption that in the euro area, policy makers identify efforts to address the crisis.”
The IMF downgraded its forecast for the world economy by 0.7 percentage points compared with its previous projections last September. Although its estimate for MENA economic growth remained unchanged from September, that was only because this time Libya was aggregated into the regional total.
The country has been in such a shambles during the summer that its data were excluded from the regional estimate. Now with the economy coming back to life and oil exports resuming, Libya will likely expand in 2012 from a low baseline. However, excluding that factor, the IMF revised total economic growth for MENA down by a sharp 1.6 points.
Europe’s debt woes threaten not only MENA exports and remittances from nationals working in European Union countries, but it makes many of the region’s economies vulnerable to a financial crisis as sources of credit dry up. Egypt is so desperate for foreign help as its foreign reserves plummet that it reversed course last week and said it would accept a $3.2 billion financial aid package from the IMF it rejected last year and may seek even more. All three major credit ratings firms — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — have downgraded Egypt’s sovereign rating over the past several weeks
While Egypt’s economy has resumed growing after the unrest surrounding President Husni Mubarak’s ouster, the country remains beset by political uncertainty while key industries like tourism have yet to recover.
But Moody’s Investor’s Service warned in a note released on Monday that Egypt’s tumultuous politics could undermine any help the IMF provides.
“Egyptian politics remain uncertain and could undermine an IMF program,” Moody’s said. “Questions remain whether the civilian, interim government will have the full authority to negotiate successfully and implement an IMF program … Another uncertainty is whether the Islamist parties, which will hold the majority of seats in the new parliament, will go along with an IMF program.”
Other countries could face similar problems from the turmoil in international financial markets. Capital Economics, a London-based consultancy, estimates that Lebanon faces a $6 billion current account deficit this year, equal to 13 percent of gross domestic product, while Jordan is likely to face a gap of $2 billion, or 7 percent of GDP.
The World Bank a week ago estimated that Lebanon’s external financing needs will equal 35 percent of its GDP in 2012, or $15 billion, the highest external funding requirement of any developing country. It said Jordan’s external financing needs are equivalent to 12.5 percent of GDP and those of Tunisia at 10.2 percent.
The World Bank expects that growth in the MENA region will remain subdued in 2012, at 3.2 percent, rising to 3.8 percent in 2013.
Marwan Barakat, chief economist and head of group research at Beirut’s Bank Audi, said the financial outlook for Egypt, Lebanon and Jordan is more dependent on developments in the Arab Spring than on Europe.
“I believe that the evolution of political situation in the region is going to play the most important role deciding whether there are [external financing] needs or not,” Barakat told The Media Line. If the political situation in the region stabilizes “the inflows of capital would be enough to finance all domestic needs of the economy in both private and pubic sector components.”
He forecasts Lebanon’s GDP will grow 3 percent to 4 percent this year, led by consumer spending. North African countries are more reliant on remittance from Europe. Egypt, Lebanon and Jordan, Barakat said, sending their excess labor to the Gulf, where economic growth continues to be brisk.
The Gulf’s oil exporters are enjoying a second surge of oil prices in a year as tensions between the West and Iran over Tehran’s nuclear ambitions have increased fears that supplies will be disrupted. Those concerns took on extra urgency on Monday when the European Union approved plans to sanction Iranian oil.
The price of Brent crude for delivery in four months’ time slipped 68 cents to $109.90 a barrel in late morning trading in London, but it remains close to its recent highs even as concerns that demand may fall as European economies totter.
The extent of the Middle East divide was pointed up by remarks by Saudi Arabia’s Prince Turki Al-Faisal on Monday, who said Gulf states like his own were willing to contribute to an increase in the IMF’s financial war chest only in return for a bigger say in the global economic order.
His comments came as the IMF seeks to increase its lending capacity by more than $500 billion to tackle the sovereign debt crisis in Europe and financial fall outs elsewhere.