Mena growth to suffer as oil output slows
Manama, April 16, 2013
Growth in the Middle East and North Africa is likely to dip this year as oil production slows in some oil-exporting nations and "Arab Spring" countries struggle with political transitions, according to the latest International Monetary Fund report.
Although most of the region’s oil-exporting countries grew at healthy rates in 2012, economic growth remained sluggish in the oil importers—many of which are undergoing political transitions.
In 2013, these differences are expected to narrow because of a scaling back of hydrocarbon production among oil exporters and a mild economic recovery among oil importers, the report said.
Many countries face the immediate challenge of re-establishing or maintaining macroeconomic stability amid political uncertainty and social unrest, but the region must not lose sight of the medium-term challenge of diversifying their economies, creating more jobs, and generating more inclusive growth, the report recommended.
Growth in the Mena region was relatively robust at 4.75 percent in 2012, but is expected to weaken to about 3 percent in 2013 largely because of an expected slowdown among oil exporters
For Mena oil exporters, 2012 was a year of robust growth, which reached about 5.75 percent, driven largely by the almost complete restoration of Libya’s oil production and strong expansions in the Gulf Cooperation Council countries.
Economic growth is projected to fall to 3.25 percent in 2013 as oil production growth pauses against a backdrop of relatively weak global oil demand.
Additional oil supplies from Iraq and Libya are expected to more than offset a decline in oil exports from Iran this year, while lower net demand for Saudi Arabian exports is expected to result in slightly reduced production.
As a result, aggregate oil GDP is expected to stagnate in 2013, compared with growth of 4.5 percent recorded in 2012.
Sustained high government spending will continue to support buoyant non-oil GDP growth, expected at 4.25 percent this year.
Overall, growth in the oil exporters of the region is projected to strengthen to about 3.45 percent
in 2014 on the back of rising non-oil GDP growth and resuming oil GDP growth.
The weak domestic and external environment will continue to pose challenges for Mena oil importers during 2013–14. Growth is projected to be 2.75 percent this year. Nonetheless,
assuming progress is made in the region’s political and economic transitions, growth in oil importers could accelerate to 3.75 percent in 2014, the report predicted.
Inflation is expected to remain moderate in most oil exporting countries because of decreasing food inflation, a benign global inflation environment, and lower increases in rents in some GCC countries.
For Iran, some of these factors are envisaged to help reduce
inflation in 2013. However, the macroeconomic environment is likely to remain difficult, given the sharp depreciation of the currency and adverse external conditions,
which would sustain inflation at relatively high levels.
Risks to the near-term outlook for oil exporters centre on the evolution of oil prices and global growth. Although fiscal and external balances are sensitive to fluctuations in oil prices, many countries have low public debt levels and would be able to draw on the reserves they have built up in the past to sustain aggregate demand in the event of a decline in oil prices.
Nonetheless, a prolonged fall in oil prices brought about by lower global economic activity would result in fiscal deficits for most oil exporters. Indeed, the emerging market slowdown scenario would place oil prices below the level required to balance the budget for most countries for many years, in the absence of a domestic policy response.
For oil exporters, increases in hard-to-reverse government expenditures such as wages should be contained to build resilience to a possible sustained decrease in the oil price. Capital expenditures can be sustained but need to be prioritized to ensure that the quality of public investment is not compromised.
consolidation is more pressing for some low-income oil exporters (particularly Yemen), which are already burdened by constrained fiscal positions.
More broadly, countries need to continue their efforts to develop fiscal policy frameworks that mitigate the economic
effects of oil price volatility and ensure the sustainable use of resource wealth.
To address their medium-term challenges, the oil exporters need to continue with reforms that increase the pace of economic diversification and support job creation. The former will require continued infrastructure investment and further improvements in the business climate, while the latter will require enhancing education and training, improving job placement services, and reviewing the incentives for working in the private relative to the public sector. - TradeArabia News Service