The World Bank has upgraded its economic outlook for the region as oil producers benefit from the strengthening price of crude and a rebound in their key export market. A revival in global oil demand would help ensure the economy of the Middle East and North Africa expanded 3.7 per cent this year and 4.4 per cent by next year, the bank said in its first global economic forecast in seven months.
Its outlook for the region was more positive than its revised global forecast, with the world economy expected to expand 2.7 per cent instead of 2 per cent as it previously predicted. Its forecast for next year globally was unchanged at 3.2 per cent. However, the World Bank warned of the fragility of the global recovery against a backdrop of tight credit conditions and governments withdrawing economic stimulus packages.
A double-dip recession, characterised by a further slowing of growth next year, was entirely possible if the private sector continued to save to restore balance sheets and the growth impact of fiscal stimulus waned, it said in the report. "If we have a double-dip global recession then we will have a replay of 2009, but the condition of the macro-economy in the GCC, and the enormous reserves governments have built up, along with the diversification that has been gathering momentum, will stand the region in good stead," said Dr Jarmo Kotilaine, the chief economist at the Saudi Arabian investment bank NCB Capital.
Years of soaring crude prices helped Gulf states amass substantial cash reserves, easing the impact of the reversal of large private capital inflows at the start of the global recession. The combined surpluses of the UAE, Saudi Arabia and Kuwait stood at about US$203 billion (Dh745.62bn) before the financial crisis. At the same time, the UAE and other Gulf states have been focusing on diversifying into areas such as financial services, property, tourism and industry to reduce their reliance on oil.
The World Bank based its upbeat forecast for the MENA region on a recovery in global oil demand, a stabilisation of oil prices and a rebound in key export markets. It said it expected oil prices to remain broadly stable, averaging about $76 a barrel. The price of crude was $78 yesterday. Moderate advances in consumer and capital spending were expected to underpin firmer growth, despite a gradual withdrawal of fiscal stimulus measures, the bank said.
The $127bn fiscal stimulus programme launched by Saudi Arabia helped soften the impact of the financial crisis on the region's largest economy. The UAE's response to the crisis included making up to $33bn available to banks across the country and providing $20bn in funding support for Dubai's economy. Although a systematic crisis in Dubai would probably be diverted thanks to the diversified holdings of the Dubai Government and emergency support from Abu Dhabi, the fallout from the restructuring of Dubai World's debt would harm the balance sheets of some local and regional banks, the World Bank said.
"The financial problems facing Dubai, along with previous defaults by two large Saudi private companies [the Saad and Al Gosaibi groups] will continue to raise concern amid the need for comprehensive corporate governance and debt restructuring reforms in the region," it said. @Email:firstname.lastname@example.org