Economic growth in the MENA region is forecast to recover to 3.1% this year, with oil importers registering the strongest gains, according to the World Bank in its report “Global economic prospects – Weak investments in uncertain times”.
Among the oil-exporting countries, Saudi Arabia is likely to see a 1.6% growth rate in 2017, a rate still modest by historical standards. Iran’s growth rate is anticipated to reach 5.2% on the expectation that oil production will continue to expand and that deals to obtain foreign investment will be completed. Algeria should slow to a 2.9% pace on a decline in spending on public works and delays in tax and subsidy reforms.
Among oil importers, growth in Egypt is forecast to slow to a 4.0% rate in FY2017 as fiscal consolidation begins and private consumption slows with rising inflation, before picking up in 2018. Morocco is anticipated to jump to a 4% pace in 2017 thanks to a recovery in agricultural output. Jordan should see a recovery in investment and exports that will push growth up to 2.6%.
Growth in 2016
MENA’s economic growth in 2016 is estimated to have slowed to 2.7%, reflecting fiscal consolidation in some countries and oil production constraints in others, said the report.
The failed ceasefire in Syria, the ongoing war in Yemen, the fight in Iraq against the Islamic State group, and the political crisis in Libya were part of a continued cycle of conflict in the region that has led to mass displacement, loss of life, and destruction of infrastructure. Cross-border spillovers in the form of disrupted trade, fiscal pressures from spending demands related to refugees and security, and loss of revenues from tourism have caused damage to the region and had international ripple effects.
Last year, growth slowed sharply in the GCC countries to 1.6% as oil sector weakness spread to non-oil sectors. At the same time, output is estimated to have accelerated in Iran to a 4.6% pace and in Iraq to a 10.2% rate, thanks to large gains in oil production in both countries and to a recovery in agriculture, automotive production, trade and transport in Iran.
Among oil-importing economies, growth in Egypt dipped slightly to a 4.3% pace in FY 2016 as foreign currency shortages held back manufacturing and the tourism industry slowed. Morocco eased to an estimated 1.5% in 2016 on a drought-related contraction in the agricultural sector.
Risks
The failure of oil prices to follow their expected upward trajectory and an escalation of conflict pose substantial downside risks to growth in the region, said the report. Elevated oil price volatility could undermine government spending and fiscal paths. Spillovers from existing conflicts in several countries, as well as a heightened incidence of terrorism, are risks to regional economic activity.
Rising conflict-related risks would likely increase economic uncertainty and slow investment. Fiscal and structural reforms could trigger public discontent, with negative effects on confidence, foreign investment, and growth. For GCC countries, the anticipated tightening of monetary policy in the US could pose an indirect risk to growth.