Experts warn unrest puts recovery at risk

Leading financial experts in the US warn that unrest in Mena could hamper global economic recovery.

Foreign tourists are still avoiding Egypt.

CHICAGO // Global economic recovery is increasingly under threat from events unfolding in the Middle East and North Africa (Mena), leading financial experts in the US warn.

In meetings held on the sidelines of the Financial Literacy and Education Summit in Chicago this week, some experts raised concerns about how long countries could sustain economic recovery as the unrest in Mena continues to push oil prices to new highs.

If oil moves into the US$150 range, then "you will have significant spikes on prices and that, historically, has impacted economic growth", cautioned Byron Pollitt, the chief financial officer of Visa.

Brent crude, the European benchmark, traded above $122 a barrel this week and hit its highest in two and a half years.

On the New York Mercantile Exchange, light, sweet crude for May delivery topped $108 a barrel, reaching its highest in two and a half years.

Mr Pollitt said the demonstrations in the Mena region and the rising price of oil were already having "much more" of an impact on determining the sustainability of global economic growth than other recent events such as the earthquake and tsunami in Japan.

But the unrest in the region has cut into cross-border travel, which was one of the early warning signs when the global economic downturn first began, he said.

Worldwide, travel transactions through Visa started to improve in December 2009 and sustained double-digit growth through last year. Yet bookings did "drop like a rock" in Egypt once demonstrations took hold in Cairo, said Mr Pollitt.

Domestic travel within Egypt has recently improved, although international visitors are still avoiding the country, and other Mena nations with disruptions.

"We could be looking at a year before tourism volumes get back to the levels they were before the event," said Mr Pollitt.

Other experts have pointed to the persistent, high unemployment rate of young people within the region as a growing concern for economic growth that could impact the rest of the world.

Youth unemployment rates already sit at 21 per cent in Lebanon, 25 per cent in Egypt and 30 per cent in Tunisia, according to IMF officials.

"If [those countries] don't figure how to tackle youth unemployment issues and increase levels of employment, then we're going to have some significant challenges going forward," said Ian Solomon, the US executive director for the World Bank.

Mr Solomon also called for a move away from companies that hold an unfair monopoly in certain countries towards opening up markets to more businesses, which could also help to create more jobs.

"The regulatory and antitrust efforts we've had in this market [in the US] free those markets [in Mena], which actually makes it more promising for entrepreneurs and gets the innovation and competition that is actually fundamental for growth," he said.