MUSCAT, JAN 10
The World Bank recently released its Global Economic Prospects report that highlights the challenges and uncertainties faced by the Middle East and North Africa (MENA) region amid the ongoing conflict and geopolitical risks. The report indicates that while the region's growth is forecasted to reach 3.5 per cent in 2024 and 2025, stronger than previously expected, the outlook remains uncertain due to various factors.
The ongoing conflict in the Middle East has heightened financial market and policy uncertainties in the region, leading to disruptions in confidence and dampening tourism-related activities. This, coupled with weakening domestic conditions, including persistently high inflation, has resulted in a deteriorating outlook for oil-importing economies. On the other hand, oil-exporting economies, especially those benefiting from the unwinding of oil production cuts, are expected to experience stronger growth.
According to the report, the Middle East already faced headwinds such as oil production cuts, elevated inflation, and weak private sector activity, which led to a sharp slowdown in growth in 2023, reaching only 1.9 per cent compared to 5.8 per cent in the previous year.
Growth in Gulf Cooperation Council (GCC) countries is estimated to have decelerated sharply in 2023 due to a decline in oil production. Saudi Arabia, in particular, experienced a contraction in oil activity and exports despite strong private consumption and public investment.
The report highlights varying growth prospects for different countries in the region. Growth is projected to pick up in Algeria and Iraq, driven by increases in oil production. In contrast, growth in the Islamic Republic of Iran and Libya is expected to moderate as oil production stabilises.
One country with a promising economic outlook is Oman. Although Oman has experienced some economic challenges in recent years, the report suggests that the country's economy is expected to rebound and show positive growth in the coming years. Oman's economic growth is projected to reach 2.7% in 2024 and 2.9% in 2025, a significant improvement from the 1.4% growth recorded in 2023.
The report also draws attention to the fiscal challenges faced by the region. Fiscal deficits are expected to widen in both oil exporters and importers in 2024, with non-GCC oil exporters experiencing a notable deterioration. Fiscal deficits are also expected to increase significantly in West Bank and Gaza, primarily due to declines in domestically managed tax instruments and other revenues.
The report concludes by outlining several risks to the baseline growth forecast. The intensification of the ongoing conflict could have severe implications for growth potential, leading to declines in investment and productivity. A surge in refugees or internal displacement of people could lead to an erosion of human capital and increased social tensions, exacerbating food insecurity and poverty. Additionally, tighter global financial conditions could result in capital outflows, currency depreciations, and weaker growth.
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