Overall, the economies of the region are forecast to expand 4.1 percent this year, the IMF said in its World Economic Outlook published on Monday. But the oil exporting countries will see real gross domestic product increase 4.9 percent while nonoil economies will grow just 1.9 percent. In the IMF’s previous forecast, published last October, growth between oil and nonoil economies was about the same at 5 percent and 5.2 percent, respectively.
The October forecast was completed two months before mass protests in Tunisia ignited regional turmoil, shutting down factories and shops, driving away tourists and deterring investors, mainly in the region’s nonoil countries. But the unrest has not only largely steered clear of oil-exporters, it has benefited them by lifting oil prices. The May contract for benchmark Brent crude traded above $126 a barrel on Friday, its highest in 32 months.
The IMF warned that economic conditions are more likely to deteriorate in the Middle East than improve over the course of the year.
“The key risks to this outlook are to the downsides,” the report said. “Depending on its duration and intensity, the domestic effects of political and social turmoil could be larger than currently expected, particular if sustained unrest spills over to additional countries in the region.”
Both oil and nonoil economies will likely face the threat of higher inflation, the IMF said. Consumer prices will rise 10 percent in 2011, up from 6.9 percent in 2001. Some of the region’s highest inflation will be in the hotspots of Iran (22.5 percent) and Egypt (11.5 percent), according to the IMF’s outlook.
The inability of the region’s policymakers to ensure enough economic growth to create jobs and to contain inflation are widely believed to be key factors behind the turmoil that has forced the leaders of Tunisia and Egypt to step down and is threatening the rule of others in Libya, Syria and Yemen.
The IMF forecast suggests governments across the region will have trouble addressing popular economic grievances in the near term. Economic growth for nonoil economies will pick up in 2012 to 4.5 percent, matching their 2010 performance, but historically rates like that haven’t done enough to create jobs and reduce income gaps without substantial reforms.
The Middle East’s woes come amid a worldwide economic recovery, though one laden with risks. The IMF sees global growth averaging 4.5 percent this year and next, with higher oil prices and Japan’s earthquake having only a “mild” impact on growth. The Middle East’s economic performance, however, remains laggard, with GDP growth trailing the 6.5 percent average for emerging market economies.
Among the Middle East economies hit hardest by political unrest are Egypt, which the IMF had predicted on October would grow 5.5 percent in 2011 but is now expected to eke out growth of no more than 1 percent, and Tunisia, whose outlook has been slashed 1.3 percent from 4.8 percent. Both countries ousted their long-time leaders but have yet to restore order as protests and strikes continue.
Some countries that have avoided mass unrest also have weaker growth prospects. Iran, will show nil growth in 2011 as consumers spend less after government subsidies on basic commodities were slashed in December. In Lebanon GDP will expand 2.5 percent this year, half the IMF’s previous projection.
Meanwhile, Saudi Arabia, with the world’s biggest petroleum reserves, will see GDP jump 7.5 percent in 2011, up from 4.5 percent in the IMF’s previously forecast. The smaller economies of Qatar and Kuwait will also show stronger growth than earlier forecast.
Said Hirsh, Middle East economist at London-Based Capital Economics, noted that the oil boon has enabled petroleum exports to shower their economies with infrastructure spending, job creation and subsidies.
“The Arab Spring prompted the Gulf countries to spend a lot, especially Saudi Arabia. So, our view on the Gulf economies is generally very positive,” Hirsh told The Media Line. “If you move to the poorer countries, the picture is very different: They don’t have the financial resources to spend their way out of problems.”
Inflation in the Middle East is being stoked mainly by higher food prices, the IMF said. The region is a large net importer of food while the IMF’s Food Price Index has risen 41 percent since mid-2010 to a record high.
