Growth in the MENA region is expected to have been 1.7% in 2018 and to rise slightly to 1.9% in 2019, supported by improvements in both oil exporters and oil importers, said the World Bank in its ‘January 2019 Global Economic Prospects’ report.
Regional growth is projected to reach 2.7% in 2020, as domestic demand remains generally resilient. Risks are tilted to the downside, including the possibility that activity will be constrained by intensified geopolitical tensions, stronger external trade headwinds, abrupt tightening of global financing conditions, and slower-than-expected reform pace.
Although positive spillovers to the region via external demand are softening amid weaker global economic prospects, domestic factors continue to support growth. These include generally resilient domestic demand and policy reforms that are helping the region’s transition away from dependence on commodity exports and the public sector. Growth in oil exporters is estimated to have recovered further in 2018. In the GCC, increased oil production and prices have eased the pressure for fiscal consolidation, enabled higher public spending, and supported higher current account balances. Non-oil sector activity in the GCC has largely been stable.
Among non-GCC oil exporters, activity in Iran has been severely affected by US sanctions and has been a significant drag on oil exporters’ and regional growth. Growth in other non-GCC oil exporters has been supported by public spending and investment. Among oil importers, growth has been steadily improving as reforms proceed. In Egypt, the largest country in this group, tourism and natural gas activity have continued to show strength. Its unemployment rate has generally fallen, and policy reforms have contributed to an upgrade of its sovereign rating in August 2018. Fiscal adjustments in Egypt have also been steadily progressing.
More generally, robust agricultural production and tourism have helped support growth of the oil importers in the region, especially Morocco and Tunisia. However, while international reserves have strengthened in Egypt, they have declined in other oil importers amid higher external vulnerabilities. Policy reforms in oil importers have helped promote innovation capacity among firms, but the scope for improvement remains large, given fundamental challenges like the quality of electricity supply that hinder the potential for private sector dynamism.
Medium-term prospects
Medium-term growth forecasts for the MENA region are predicated on the assumption that there will not be a significant escalation of geopolitical conflicts and that there will be limited regional spillovers from conflict-ridden economies, said the report.
Among the GCC economies, growth over the medium term will remain steady, underpinned by planned diversification programmes, infrastructure projects, and medium-term reform plans.
Continued IMF and World Bank programmes in many economies such as Egypt and Morocco are expected to provide a basis for needed structural adjustments (eg, stronger fiscal management frameworks, higher public infrastructure quality), as well as steps to address the vulnerabilities associated with the informal sector.
Financial reforms – such as newly approved bankruptcy laws in Egypt, Saudi Arabia, and the UAE– should help relieve financial constraints in the corporate sector and support investor confidence. Collectively, policy reforms across the region are expected to improve growth potential in the medium term. M