Mideast set for worst slump in decades: IMF report

With a 2 percent growth forecast, Egypt will be the only regional country not to see its gross domestic product fall this year, according to the IMF World Economic Outlook report. (AFP)
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Updated 15 April 2020

Mideast set for worst slump in decades: IMF report

  • Lender expects oil price to remain under $45 through 2023 as global economic outlook deteriorates

DUBAI: The Middle East and North Africa economy will contract by 3.3 percent this year, the biggest slump in four decades, hammered by the coronavirus and low oil prices, the IMF said on Tuesday.

 

In its World Economic Outlook, the International Monetary Fund said that the damage would be much worse than the region’s last major shock, the 2008-09 global financial crisis, when it managed to post modest growth.

The region, which includes all Arab countries and Iran, will suffer its worst economic performance since 1978 when it was convulsed with unrest and shrank by 4.7 percent, according to World Bank data. The IMF said that all the regional countries apart from Egypt will see their gross domestic product (GDP) fall this year.

Saudi Arabia, the region’s heavyweight which is just emerging from an oil price war with Russia that saw crude prices crash, is headed for a 2.3 percent contraction.

“The fast deterioration of the global economic outlook as the epidemic has spread and the breakdown of the OPEC+ agreement among oil suppliers have weighed heavily on commodity prices,” the global lender said.

Its report was prepared before the OPEC+ grouping — which takes in OPEC producers and allies — reached agreement on Sunday to cut output by nearly 10 million barrels a day, the largest in history.

From mid-January to end-March, prices dropped by 65 percent or $40 a barrel and gas prices declined by 38 percent, the IMF said. It projected prices to remain below $45 a barrel through 2023, about 25 percent below the average last year.

FASTFACT

6%

Iran’s economy, the second largest in the Middle East, is forecast to shrink 6 percent in 2020 for its third contraction in a row.

Arab countries, which have reported more than 20,000 coronavirus cases along with more than 700 deaths, have resorted to sweeping lockdowns and curfews to prevent the spread of the disease, disrupting local economies.

Years of conflicts in several Arab countries including Syria, Yemen, Iraq and Libya have battered their economies and created widespread poverty. And many Middle Eastern countries, notably the Gulf states plus Iraq and Iran, depend on oil revenues to finance their budgets.

“These developments are expected to weigh heavily on oil exporters with undiversified revenues and exports,” said the IMF, adding that lower oil prices will meanwhile benefit oil-importing nations.

The UAE’s economy, the most diversified in the region, is projected to contract by 3.5 percent, while Qatar, the third-largest in the Gulf, is expected to slide 4.3 percent. Iran’s economy, the second largest in the Middle East, is forecast to shrink 6 percent for its third contraction in a row. 

Iran has been hit hard by the coronavirus, reporting more than 73,000 cases and 4,585 deaths.

The economy of Lebanon, which has defaulted on its debt, is expected to shrink by 12 percent, while Iraq, OPEC’s second-largest producer, is headed for a 4.7 percent fall.

Only Egypt is projected to stay in positive territory with 2 percent growth, although that is way down from the 6 percent projected before the coronavirus crisis hit.


‘The stock market, stupid’ — Trump’s claim is looking hollow 

Updated 29 October 2020

‘The stock market, stupid’ — Trump’s claim is looking hollow 

  • The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency
  • The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost

Before the US election of 1992, candidate Bill Clinton summed up what he saw as the reason he would become president: “It’s the economy, stupid.” He was proved right as voters disowned the economic policies of President George H.W. Bush in their droves to elect Clinton. 

Until the COVID-19 pandemic began to ravage the US economy in March, President Donald Trump would have been able to make the same claim. For the four years of his presidency, the US economy had continued the progress initiated by his predecessor to recover from the 2009 global financial crisis.

By most measures — growth, employment, inflation — the Trump years had been good, and those on the top of the pile had even more reason to be grateful thanks to the big tax cuts he had made a flagship policy.

The pandemic changed all that in the space of a few weeks as lockdown measures shocked the economy. Jobless claims soared to all-time records, bankruptcies and closures affected large swathes of American business, and gross domestic product collapsed. The International Monetary Fund forecasts that the American economy will shrink by 4.3 percent this year.

But Trump could still claim instead that “it’s the stock market, stupid” as a reason he could be re-elected. Mainly because of the trillions of dollars injected into the economy in the form of fiscal stimulus, US share indices had swum against the economic tide.

The S&P 500 index hit an all-time high in September, allowing Trump to boast that under his administration, investors and the millions of people whose livelihoods depended on the financial industry had never had it so good.

Now, it looks as though even that final claim is looking more fragile. For the past couple of days, US and European stock markets have gone into reverse as investors took fright at the rising number of COVID-19 cases and the re-imposition of economic lockdowns in many countries.

Trump might argue, with a little justification, that Wall Street is worried about the prospect of Joe Biden being elected president by the end of next week. Certainly the contender, by definition, is something of an unknown quantity in terms of economic policy.

He is also known to favor some policies — such as tighter regulation on environmental sectors, more spending on health care, and higher taxes for federal services and projects — that have traditionally been regarded as contrary to the philosophy of “free market” America.

In particular, the energy industry is worried about possible restrictions on shale oil and gas production that Biden and his “green” team are believed to favor. However, it should be pointed out that the Democratic candidate has specifically said he will not ban shale fracking, as some environmentalists want.

In any interesting side-story, the state of Texas — one of the biggest in terms of electoral college votes — would seem to have more to lose than any other if the energy scare stories about Biden were true. Yet the contest there between Democrats and Republicans is the closest it has been for decades, according to opinion polls.

The timing of the Wall Street downturn is the worst possible for the incumbent, who has declared every new peak in the S&P as a personal victory throughout his presidency and a sign of his deal-doing prowess. If even this claim is denied to him in the final week of campaigning, it would make the uphill battle against the polls even more difficult.

There is a chance that Big Tech might offer some relief. The likes of Apple, Amazon, Alphabet and Facebook are due to declare their earnings for the third quarter, and how those numbers are received could give the indices a boost, given that they were the ones largely responsible for the big market gains earlier in the year.

But for Trump, any such respite might be too little, too late. It looks as though Wall Street and Main Street are finally catching up in their gloom, and there is nothing the president can do about it.