The Gulf is set to lead an economic recovery for the MENA region despite Europe's debt crisis and dim prospects for advanced economies, the World Bank says in a report, raising its GDP growth forecasts for the broader region this year to 4 per cent. "The high-income oil exporters seem better placed to lead recovery for the broader MENA region, as oil prices have traced an upward trend and financial conditions in the group are stabilising," the World Bank said in a summer update to its Global Economic Prospects report.
Leaders in the developed world are trying to avert a double-dip recession as heavily indebted European countries including Greece, Spain, Portugal and Italy take steps to avoid sovereign defaults with the help of a US$1 trillion (Dh3.67tn) aid package from the EU and IMF. Ben Bernanke, the chairman of the US Federal Reserve, said this week he could not rule out the possibility of a return to recession, mirroring the World Bank's take that a double-dip "could not be excluded" if Europe's debt problems spread.
Mr Bernanke said in testimony before the US Congress that budget deficits taken on to finance huge bailouts were unsustainable in the long term, hinting at the possibility of tighter government budgeting in the US as European politicians introduce their own austerity measures. But the World Bank said it saw "tentative signs of recovery" in MENA, thanks to a rise in oil prices since the middle of last year and a weaker euro, which had given the region's exports more buying power.
The World Bank, which offers financial assistance to developing countries, in January predicted 3.7 per cent growth for the MENA region. It revised that to 4 per cent in its Global Economic Prospects report and said it saw 4.3 per cent growth next year, followed by 4.5 per cent in 2012. Despite improving economic prospects, MENA faces numerous hurdles. There could be spillover from the European debt crisis, especially in countries with close trade links with the continent, such as Egypt, Morocco, Tunisia and Lebanon.
Europe's problems could also hurt global demand for oil and other exports. Europe is not a major destination for Gulf oil but sagging demand there could send global prices down. In the GCC, the World Bank said GDP growth declined to 0.2 per cent last year from 5.3 per cent the year before, due to cutbacks in oil production and slackening prices, which bled over into stock markets and shook investor confidence in the region.
Dubai World's $23.5 billion debt restructuring, which began last November, and the continued inability of banks to make new loans is still a major issue in the GCC, the World Bank said. "Within the broader region, the high-income GCC economies were hardest hit by crisis, due to the huge terms of trade shock associated with the plunge in oil prices and a financial shock which destabilised overextended domestic banks, in part leading to a bursting of real estate bubbles," the World Bank said.
"The debt problems of Dubai ? first brought the possibility of 'sovereign default' in the region on to the global radar. "Equity markets across the oil exporters plunged at the outset of the crisis and recovery has been exceptionally sluggish, underscoring continuing market uncertainties regarding the financial underpinnings of these economies." Overall, developing countries are expected to fare better in coming years as mature economies struggle to match growth rates from before the global financial crisis, the World Bank said.
It projected global GDP growth this year and next of between 2.9 and 3.3 per cent, reversing a 2.1 per cent decline last year. The developing world, which includes economic powerhouses such as China and India, is expected to see annual growth of between 5.7 and 6.2 per cent in the next three years. "The better performance of developing countries in today's world of multipolar growth is reassuring," said Justin Yifu Lin, the World Bank's chief economist.
"But for the rebound to endure, high-income countries need to seize opportunities offered by stronger growth in developing countries." email@example.com