News Middle East12 Jan 2020

MENA:World Bank forecasts region's growth to pick up in 2020-2022

12 Jan 2020

Regional growth in the Middle East and North Africa is projected to pick up to 2.4% in 2020 and to about 2.8% in 2021-22, as infrastructure investment and business climate reforms proceed, says the World Bank.

In its flagship Global Economic Prospects report released last week, the World Bank states that continued reform efforts and strengthening domestic demand in key economies should provide support to activity.

Despite the projected growth acceleration, long-standing challenges, such as high unemployment rates among youth and women and high poverty rates in some countries, will remain. In particular, for economies affected by fragility, conflict, and violence, armed conflicts imposed further setbacks to poverty via lower provision of public services and social safety nets. More sustained growth will be needed to resolve these challenges.

Among oil exporters, growth is expected to pick up to 2% in 2020. Infrastructure investment, along with an improved regulatory environment backed by business climate reforms, are expected to support activity in the GCC.

Iran

Iran’s economy is expected to stagnate at a lower base, as the initial intensive impact of sanctions on oil production and exports is assumed to taper somewhat.

Medium term

Over the medium term, growth in GCC economies is expected to remain steady, underpinned by planned diversification programmes, longer-term infrastructure programmes, and measures to ease foreign investment restrictions.

Growth in oil importers is expected to rise slightly in 2020, to 4.4%, led by improvements in larger economies. Growth in oil importers is contingent upon the materialisation of reform plans and no escalation of political risks. Tourism, aided by government promotion initiatives and improved security, is expected to continue supporting activity in Egypt, Morocco, and Tunisia.

However, for smaller oil importers, banking sector fragility and high public debt are significant constraints on growth. Moreover, the sustainability of debt or external position in these economies often depends on the materialisation of expected multilateral and bilateral financing flows or on the strength of sovereign credit; and are vulnerable to sudden shifts in market confidence. Modest growth in smaller oil importers weighs further on the high budgetary financing pressures of these economies and the sustainability of their high debt.

Medium-term growth prospects for the MENA region are contingent on an attenuation of armed conflicts, and on limiting their regional spillovers. Structural reforms, such as those to provide stronger fiscal management and to enhance the investment climate, are underway in many GCC and non-GCC economies.

New financial reforms, such as investment law and stronger minority investor protection in Egypt; the relaxation of foreign investment restrictions across 13 sectors and in SME licensing in the UAE; and a new secured transactions law in Jordan have been adopted. They are expected to help relieve financial constraints in the corporate sector, support investor confidence, and raise foreign direct investment. Structural reforms of this nature could help raise the historically weak long-term productivity performance in these countries.

Nonetheless, the limited churn of firms, barriers to competition, and labor market inefficiencies hinder MENA firms’ ability to generate private sector jobs.

2019 estimated GDP growth

Regional growth decelerated to an estimated 0.1% in 2019, down from 0.8% the previous year. The slowdown largely reflected the sharp growth contraction in Iran, following the tightening of US sanctions, geopolitical tensions in the Strait of Hormuz, and diplomatic setbacks.

Weakened global growth weighed on demand for oil and other exports, further hindering activity in the region generally.

Public spending has been robust in some oil exporters, including those in the GCC. Non-oil activity has also shown supportive signs. However, these developments were insufficient to offset weak activity in the oil sector. In addition to less supportive global demand, commitments to the oil production-cut agreement of the Organization of the Petroleum Exporting Countries and other signatory countries (OPEC+) and regional geopolitical events further constrained the oil sector.

 

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