The International Monetary Fund lowered its economic forecast for the Middle East and Central Asia (Meca) region, which is now set to contract 4.7 per cent this year, due to the impact of the Covid-19 pandemic and lower oil prices.
The latest projection is 2 percentage points lower than the fund's April estimate, the IMF said in its latest Middle East and Central Asia Economic Outlook. The deeper contraction is in line with revisions to the global economy's outlook, which is forecast to contract 4.9 per cent this year, according to the Washington-based fund.
The pandemic will continue to test the economic resilience of Meca countries given the “unusually high uncertainty” of the outbreak’s impact on businesses and risk from a potential return of volatility in global oil markets dominates the regional outlook, the IMF said.
Though the region's response to the pandemic was swift and saved lives, the policies have also had a large impact on domestic economic activity, the lender said.
“A sharp decline in oil prices together with production cuts among oil exporters and disruptions in trade and tourism added further headwinds,” it said.
Oil prices, which slumped more than 70 per cent this year, have recovered after the Opec+ group of oil exporters, led by its biggest producers Saudi Arabia and Russia, agreed to output cuts to curtail supply in the market. Crude prices, however, remain significantly lower than their peak last year.
Several countries in the region have started opening their economies; however, “rising infection numbers may pose risks,” it added. The virus has infected over 12.8 million people worldwide and killed more than 568,000, according to Johns Hopkins University, which is tracking the outbreak.
The IMF projects a cumulative loss of over $12 trillion (Dh44tn) to the global economy, which is set to slide into the deepest recession since the 1930s.
Governments worldwide including Saudi Arabia and the UAE – the two biggest Arab economies – have topped up their fiscal support to offset the effects of the pandemic, pumping about $11tn into their economies, compared with $8tn in April.
Despite the injection of capital, the IMF said downside risks remain and the recovery of the global economy will be sluggish, expanding 5.4 per cent in 2021.
Within the broader Meca, the pull back is largely driven by the Middle East, North Africa, Afghanistan, and Pakistan (Menap) economies, where growth in 2020 is expected to be 2 percentage points weaker than in the IMF’s projections in April. The fund expects real GDP of Menap region to contract 5.1 per cent this year and recover next year with a 3.1 per cent expansion.
In contrast, growth in the Caucasus and Central Asia region was revised down by a 0.5 percentage point, reflecting strong policy response in some countries and lower oil production cuts than those observed in Menap, according to the fund.
“Despite supportive policies, growth revisions appear to be linked to lockdowns and mobility,” the IMF said. “Countries with the highest lockdown stringency or lower workplace mobility also showed bigger real GDP revisions since the April 2020 [estimates]” it said.
The IMF estimates Menap oil exporting nations' economies to contract 7.3 per cent in 2020 and then expand 3.9 per cent next year. The downward revisions reflect the “double whammy” from oil price fluctuations and the pandemic-linked lockdowns.
The growth of the non-oil sector of these economies has also been marked down. The revision is a result of stay-at-home rules and other Covid-19 containment measures that are causing larger-than-expected disruptions to the tourism, hospitality, transportation, and retail sectors, the IMF said.
Economies of oil importing nations in the Menap region are projected to shrink 1.1 per cent as forecast in April. However, there are substantial differences across countries.
Growth in 2020 has been revised down for several economies including Afghanistan, Djibouti, Jordan, Morocco and Sudan, as sluggish growth in their trading partners is expected to have a “stronger-than-previously-projected impact on manufacturing and tourism exports”, the IMF said.
Economic conditions in Lebanon, which is facing its worst financial crisis in three decades, continue to deteriorate with a double-digit contraction projected for 2020 and annual inflation already at 56 per cent in May, the fund said. Lebanon's currency has already lost nearly two-thirds of its value against the US dollar despite the imposition of informal capital controls.
Source: The National