Extreme uncertainty underpins subdued Mena growth forecasts

IMF slightly downgrades region's growth projection to 2.7 per cent in 2024

The largely destroyed city of Khan Younis in the Gaza Strip after the Israeli army withdrawal. The World Bank previously reported that economic activity in Gaza is at a near standstill due to the war. EPA
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Middle East and North African economies face a significant degree of uncertainty this year with the Israel-Gaza war threatening to spill into the broader region, according to reports from the International Monetary Fund and World Bank.

“This year is more than any other year, the level of uncertainty … is very high,” IMF regional director Jihad Azour told The National.

New economic outlooks released by the IMF and the World Bank show the Mena region is poised for another year of subdued growth. Both agencies forecast the economy to grow by 2.7 per cent this year, slightly better than the tepid growth it experienced last year.

Mr Azour said there were two main dimensions for downwardly revising the Mena economic forecast by 0.6 per cent from its October Regional Economic Outlook.

“The first dimension is the epicentre [of the war] and neighbouring countries – Lebanon, Jordan, Egypt, Iraq. And also the impact on trade,” he said.

Growth is expected to pick up at a 4.7 per cent pace in 2025, according to the IMF's projections.

Meanwhile, emerging economies and middle-income countries last year were affected by a decrease in tourism and food imports and commodities.

Some of them were severely affected by the two shocks, the war in Ukraine and the war in Gaza, Mr Azour said.

A number of factors play into this expected subdued growth – not least of all conflict in the Middle East, where escalatory tension between Israel and Iran demonstrate the threat of how the Israel-Gaza war could spread.

Mr Azour cautioned that, with how regional risks develop, any projection this year must be viewed with “extreme uncertainty”.

Gaza war and Red Sea crisis add to uncertain outlook

While uncertainty is not as prominent in other regions as was seen following the 2022 Russian invasion of Ukraine, it remains elevated in the Middle East. The World Bank reported that the early months of this year point to persistent uncertainty in the region.

“This has implications not only for forecasters, but also for governments making decisions and for businesses making decisions,” Roberta Gatti, chief economist of the World Bank Mena region, told The National.

“So it makes everything more difficult and complicated,” she said.

The World Bank previously reported that economic activity in Gaza is at a near standstill due to the war, and it remains a key downside risk for the region.

Both the World Bank and IMF warn further escalation or a prolonged conflict could further disrupt trade and shipping, and neighbouring economies would experience reduced tourism.

Trade disruptions have taken a significant toll on Egypt, where revenue from the Suez Canal has fallen as much as 50 per cent because of Houthi attacks in the Red Sea.

Trade volumes through the Suez Canal declined by 42 per cent between the end of December and February. So far, though, this has had a muted impact on prices.

“But if this continues, the repercussions can be more serious,” Ms Gatti said.

Mr Azour said that, with the longevity or proximity of the war uncertain, at-risk countries must rebuild their fiscal buffers to avoid any shocks.

“For the rest is to maintain macroeconomic stability, reduce the financing risks [and] increase the level of resilience,” he said.

Uneven recovery as debt burdens grow for oil importers

The Middle East and North Africa is set for an uneven recovery as inflation returns closer to its historic average for most countries, with tightening cycles likely having reached their peak.

Overall, inflation is projected to decline to 15.4 per cent this year, slightly down from 16.0 per cent in 2023, before declining to 12.4 per cent in 2025, according to the IMF.

And there is a significant divergence among oil exporters and importers.

Oil-importing countries' inflation is projected to decline to 10.7 per cent this year, versus an increase of 28.0 per cent for oil importers.

Production cuts by exporting countries, along with Red Sea disruptions, have exacerbated the vulnerabilities of oil-importing countries who face high levels of debt.

In Gulf Co-operation Council countries, meanwhile, growth this year is reflected due to strong activity in the non-oil sector, while gross domestic product growth in oil-importing countries is projected to slow.

The World Bank reported oil-importing countries in the region had a debt-to-GDP ratio of roughly 90 per cent last year, nearly three times that of oil-exporting countries.

“The concern about debt is not just for Mena, but it's global … but it's particularly important in Mena and in particularly important for oil-importing countries,” Ms Gatti said.

Updated: April 18, 2024, 4:56 PM