MENA’s GDP growth to moderate at 3.1% in 2013

MENA’s (Middle East and North Africa's) real GDP is expected to expand by 4.8 percent in 2012 influenced by the growth in oil exporting countries. The real GDP of oil exporting countries is anticipated to expand by 5.7 percent in 2012 compared to 3.9 percent in 2011, according to a report by the Kuwait-based Global Investment House.
GDP of MENA's oil importing countries expanded by 1.9 percent (lowest in the last three years) in 2012, with high food and fuel prices, low tourism growth, policy uncertainties, and subdued public expenditure impairing growth.
MENA's GDP growth is forecasted to moderate to 3.1 percent in 2013, in line with growth expectations in the region's oil exporting countries, before recovering to 3.7 percent in 2014.
In 2013, fiscal surplus is expected to decline to 4.7 percent of GDP for the MENA region, following continued fiscal spending by oil exporting countries, particularly GCC countries, to support various planned social expenditures under long-term development plans of the respective countries. Consequently, fiscal surplus for GCC countries is expected to moderate to 11.2 percent of GDP in 2013. Meanwhile, fiscal deficits for non-GCC oil exporting countries will deteriorate further to 2.1 percent in 2013.
Gross public debt among MENA’s oil exporting countries declined further and remained at low levels. Public debt–to-GDP ratio is expected to decline to 13.9 percent in 2012 and 10.7 percent in 2013 from 14.9 percent in 2011. Similarly, non-GCC oil exporters are expected to reduce their public debt by almost half between 2011 and 2013. Gross public debt-to-GDP ratio is expected to decline from 17.6 percent of GDP in 2011 to 9.9 percent in 2013.
After the Arab spring in Egypt, the new Egyptian government took series of measures to contain the economic turmoil among them in November 2012, the Egyptian finance ministry unveiled a 10-year economic reform plan aimed at making Egypt a more democratic country. The most important components of the plan include reducing the government’s deficit through two means — reduction in subsidies and revisions in the current tax regime. The program aims to reduce the fiscal deficit to 10.4 percent of the GDP during 2012-2013 compared to a budget deficit of 10.9 percent in the previous year. The reforms also provide for decreasing the fiscal deficit to 8.5 percent by end of fiscal 2013-2014, as well as reducing the deficit to 5.0 percent of GDP by end of 2016-2017.
Although the significance of oil and gas production to the overall growth of the MENA’s oil exporting countries will not diminish, the nonoil sector has increasingly supported the overall GDP growth in the region, led by higher manufacturing activities and investments to upgrade social infrastructure. Nonoil GDP growth among MENA oil exporters is expected to increase 4.8 percent in 2012, while the oil sector growth would decline to 1.3 percent from 2.6 percent in 2011.
After more than doubling to $ 407.7 billion (14.0 percent of the GDP) in 2011, current account balance (CAB) in the MENA region was recorded at $ 396.9 billion (12.5 percent of GDP) in 2012. As the combined CAB of MENA oil exporting countries represent more than 90 percent of the MENA region, higher oil exports are the primary driver for the high CAB. Total exports by MENA oil exporting countries increased 32.5 percent in 2011, led by similar growth (39.2 percent) in exports from GCC countries. Meanwhile, imports rose 12.3 percent among MENA oil exporting countries, again led by 17.8 percent growth in imports of GCC countries. Total exports by MENA oil exporting countries are expected to remain high in 2012, as GCC’s exports increase 6.8 percent and imports rise at 8.5 percent in 2012.
On the other hand, MENA oil importing countries continued to register current account deficits as a result of lower exports to Europe, dislocation of goods transit through Syria, and decline in tourism receipts due to the recent political turmoil in the region. Current account deficits rose to 6.9 percent of the GDP among oil importing countries in 2012 from 5.2 percent in 2011, led by 4.7 percent increase in imports, while exports declined 2.9 percent. CAB is expected to improve slightly in 2013, led by marginal economic recovery in Europe, which serves as a key trade partner of the region, while tourism activity picks up, albeit slowly and below the pre-unrest levels in Egypt, Jordan, Lebanon, and Tunisia. Tourism, which contributes 5 percent of the GDP in Egypt, was among the worst hit sectors during the civil unrest in the country.
High oil surplus, together with region-wide public wage growth and direct subsidies to nationals to compensate for the high food and commodity prices, has fueled supply and demand-driven inflation in the MENA region. In particular, consumer prices in the non-GCC oil exporting countries are expected to record a 19.1 percent increase in 2012. High inflation would persist in non-GCC oil exporting countries in 2013, but with some improvements as fiscal and monetary tightening comes into play.
Factors such as high gross reserves and civil service wage increase have created excess liquidity in countries like Algeria (projected to record inflation of 8.5 percent in 2012). In Yemen, the continued funding of fiscal deficits by the central bank has led to excess monetary growth and inflation (15.0 percent in 2012). Meanwhile, the low credit off-take in Iraq has left consumer prices at its lowest among the non-GCC oil exporters. Libya is expected to witness a sharp fall in inflation in 2013 to 0.9 percent from 10.0 percent in 2012, as the economy sheds the cost of civil unrest and moves on to a strong growth trajectory.
Inflation in MENA oil importing countries is projected to rise to 9.0 percent in 2012, as governments reduce energy subsidies and allow hikes in international food and fuel prices to be passed on to the consumers. Nevertheless, concession in monetary policy in response to a second round of price hikes is expected to reduce inflation marginally to 8.8 percent in 2013.
After a lackluster 2012, with GDP growth at 2.8 percent, Jordan’s economy is expected to recover in the coming years. Jordan’s economy suffered from the instability in the region, which negatively affected the tourism industry. In addition, poor performance of the global economy dampened exports.
The economy is expected to improve in 2013 with a GDP growth of 3.3 percent, and thereafter, at an average of 4.0 percent till 2017. Foreign direct investments are likely to increase, especially from the Gulf States, as global economic conditions remain in jeopardy.
Private consumption, although currently under stress, is expected to boost in the long term owing to a recovery in the tourism industry - the second biggest employer in Jordan. Furthermore, the rising demand for Jordanian goods from the neighboring countries, especially Iraq, is likely to increase exports, thus offsetting the decreasing demand from the United States.