Mena economies to slow as oil price slump and virus take toll, IIF says

Oil-importing countries to see economic growth decline to 0.8%, lowest since early 1990s

A picture taken on March 23, 2020, shows the empty King Fahd road in the Saudi capital Riyadh after authorities imposed a curfew for 21 days to curb the spread of the COVID-19 coronavirus pandemic. / AFP / FAYEZ NURELDINE

The Middle East and North Africa economies are forecast to shrink this year as the dual impact of the Covid-19 pandemic and plunging oil prices point to the region's first recession in three decades.

The Institute of International Finance (IIF) downgraded its economic growth forecast for the Mena region to minus 0.3 per cent in 2020, down from a previous forecast of 1.8 per cent growth, according to its latest report.

"Quarantines, disruption in supply chains, the crash in oil prices in light of the breakdown of Opec+, travel restrictions, and business closings point to a recession in the Mena region," the IIF said on Friday. "Governments are trying to mitigate the economic damage with stimulus packages, but many are starting from a weak position."

The Covid-19 pandemic disrupted international trade and devastated the travel and tourism sectors. The outbreak, the greatest challenge since the 2008 financial crisis, wiped at least $20 trillion (Dh73.4tn) from markets worldwide, with the International Monetary Fund predicting a global recession.

The fallout from the rapid spread of the virus has prompted governments in the Middle East and globally to roll out more than $7tn in economic stimulus packages while central banks have cut interest rates to stabilise financial markets. On Friday US President Donald Trump approved a $2tn rescue package.

The number of Covid-19 confirmed cases globally rose to about 615,000 on Saturday and the death toll climbed to near 29,000, while about 136,000 people have recovered, according to the John Hopkins University coronavirus tracker.

The twin shock of the Covid-19 outbreak and falling oil prices will particularly affect Mena countries with limited ability to implement fiscal measures to ramp up public services and support affected sectors, the IIF said. Countries such as crisis-hit Lebanon, Iraq, Tunisia and Algeria will face “substantial” pressure.

Growth in Mena's oil-importing economies is forecast to decline to 0.8 per cent in 2020, the lowest rate since the early 1990s, the IIF said, revising an earlier projection of 3.2 per cent.

A global recession would lead to a reduction in trade, foreign direct investment, tourism flows, and remittances to Egypt, Jordan, Morocco, and Lebanon. Egypt also stands to see a "significant" drop in Suez Canal transit revenue.

The region's oil-exporting countries face the additional challenge from the slump in oil prices, following the collapse of a production cut agreement between Opec+ partners.

Their economies are forecast to grow 0.6 per cent this year, revised downwards from an earlier projection of 2.2 per cent, according to the IIF.

In a baseline scenario with average oil prices of $40 per barrel, the exporting countries are forecast to see a fall in hydrocarbon earnings in 2020 of $192 billion or 11 per cent of gross domestic product (GDP), the report showed.

More than two-thirds of financing would be raised domestically and by tapping large financial buffers, particularly sovereign wealth funds, IIF said.