After a 2011 that most of the region's economies would rather forget, the Middle East and North Africa (MENA) looks set for more of the same this year as political turmoil continues to weigh on tourism and investment and strains government budgets, the International Monetary Fund (IMF) said.
Its latest forecast for the region, released late on Tuesday, shows economic growth accelerating in 2012 to 4.2% from 3.5% last year, making it one of the only world regions to show faster growth. But otherwise the outlook is not encouraging.
The economies of key countries, such as Egypt, Saudi Arabia and the United Arab Emirates (UAE), are expected to slow from their 2011 pace. Moreover, the region is trailing growth in the world's emerging and developing economies, which the IMF projects will reach 5.7%. By 2013, the IMF sees the pace of growth falling back to 3.7%.
"We're talking about the same trends of 2010. Oil-producing countries are benefitting from the high prices and from the domestic stimulus packages they are pursuing, which is reinforcing their growth outlook," Marwan Barakat, chief economist at Lebanon's Bank Audi, told The Media Line. "Oil-importing economies are adversely impacted by the regional turmoil. They are reporting low growth rates and for some negative growth rates."
The economic outlook is unwelcome news for the region's governments, especially those coping with the Arab Spring unrest unleashed last year. While demands for freedom and democracy were at the forefront of opposition demands, grievances over poverty, high unemployment and rising food prices are widely seen as fueling rebellion. Without renewed economic growth, governments will be hard-pressed to contain further unrest.
In Egypt, where the transition to democracy is proceeding chaotically and the government faces a foreign reserves crisis, economic growth will probably slow to 1.5% this year, according to the IMF. The jobless rate is expected to rise by 1.1 percentage point to 11.5%. While inflation is expected to slow, it will remain a high 9.5%, it says.
The outlook for the region is part of a worldwide forecast, which sees economic growth edging down to 3.5% this year. Even the figure is clouded by a risk that Europe's financial crisis will reverberate into general economic slowdown. Tensions in the Middle East as sanctions are imposed on Iran pose another threat in the form of a 20% to 30% jump in oil prices.
"When we looked at a scenario in which there was general uncertainty in the Middle East, the oil price went up by roughly 15% for a long time. That is not good. That, we think, would decrease the level of output over two years for the U.S and for Europe by about 1%," Oliver Blanchard, the IMF's economic counselor, said an in broadcast interview.
In making its growth projections for MENA, IMF pointed to domestic political unrest, which remains a factor even in countries like Egypt, Tunisia and Libya where rebellions have already ousted long-standing leaders and the movement toward more democratic government has begun. Foreign investment and tourism, two key sources of economic growth, have yet to return.
The depth of the MENA region's continued turmoil is such that two major countries - Syria and Libya - were not included in the 2012 survey due to insufficient data.
The wealthy oil-exporting countries have avoided unrest, helped by increased government spending for salary hikes, job creation and subsidies. But all across the region, the IMF warned, state spending poses a long-term risk for both rich and poor economies.
Barakat of Audi Bank said, however, that delayed economic reform could be seen as a reasonable price to pay as Arab Spring countries focus on bigger issues that will build the foundations for economic growth later.
"Countries are witnessing economic pressures related to growth forgone -- delayed investment, decline in capital inflows and monetary pressures," he said. "It's the cost of a transition toward, hopefully, a landscape with better political rights, better government, better institutional frameworks, more efficient economies in the medium to long term."
Domestic tumult isn't the only factor harming economic growth. The MENA region through its exports of oil and labor is exposed to the sputtering European economy. The euro zone is likely to contract by 0.3% this year, the only region of the world to show negative growth and will enjoy a tepid recover in 2013, according to IMF projections.
Overall, among MENA oil-importing countries - a group that includes Morocco, Tunisia, Lebanon and Jordan as well as Egypt - gross domestic product will expand 2.2%, not much more than 2011's 2% pace, the IMF said. Consumer price rises will cool, but not by much, slowing 6.9% from 7.45% in 2011.
The outlook for MENA's oil exporters is stronger, with GDP growth projected by the IMF at 4.8% this year on the back of higher petroleum prices. But, with the exception of Iraq, most oil-exporting economies will suffer slower growth this year -- -- Saudi Arabia decelerating from 6.8% in 2011 to 6%, the UAE from 4.9% to 2.3% and Qatar, which enjoyed a massive natural gas boom in 2011, from 18.8% to 6%.
Iran, whose economy is reeling from sanctions imposed by the United Nations and Western powers, is likely to see almost nil growth in 2012. With GDP edging higher by0.4% for the year, according to the IMF, Iran's unemployment rate is forecast to rise from 15.1% to 16.7% as inflation remains above 21%.
The IMF world growth figures point up the MENA region's growth problem. Over the last decade, the region's GDP growth has consistently lagged behind the average for emerging and developing countries even though the region has one of the world's fastest rates of population growth.
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