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Regional Economic OutlookRegional Economic OutlookMiddle East, North Africa, Afghanistan, and PakistanMiddle East, North Africa, Afghanistan, and Pakistan
Masood AhmedDirector, Middle East and Central Asia Department
International Monetary FundInternational Monetary FundMay 2009
2INTERNATIONAL MONETARY FUND May 2009
MENAP CountriesMENAP Countries
Oil Exporters (12)
Oil Importers (10)
Mauritania
Libya
Tunisia
U.A.E.
Somalia
Afghanistan
Sudan
Egypt
Algeria
MoroccoIran
Pakistan
Oman
Iraq
Yemen
SaudiArabia
Djibouti
Kuwait
Bahrain
West Bank and Gaza
Qatar
Syria
Lebanon
Jordan
3INTERNATIONAL MONETARY FUND May 2009
OutlineOutline
World Economic Outlook
MENAP Economic Outlook
4INTERNATIONAL MONETARY FUND May 2009
World Economic Outlook: Key MessagesWorld Economic Outlook: Key Messages
Financial markets remain highly stressed.
The world economy will contract in 2009 by around 1¼ percent before recovering gradually in 2010.
Emerging economies face dramatic drops in capital inflows, demand for their exports, and commodity prices.
A third wave of the global financial crisis is hitting the world’s poorest and most vulnerable countries.
Turning around global growth depends critically on concerted policy actions to stabilize financial conditions, as well as sustained strong policy support to bolster demand.
5INTERNATIONAL MONETARY FUND May 2009
CDS Spreads for High-Grade Financials (Basis points)
Systemic risks remain elevated despite forceful policy efforts.
Source: Bloomberg.
0
100
200
300
400
500
600
Jan-
07
Feb-0
7
Apr-0
7
Jun-
07
Jul-0
7
Sep-0
7
Nov-0
7
Dec-0
7
Feb-0
8
Apr-0
8
Jun-
08
Jul-0
8
Sep-0
8
Nov-0
8
Dec-0
8
Feb-0
9
Apr-0
9
0
40
80
120
160
200
240U.S. (left axis)
Europe (right axis)
Lehman Bros. bankruptcy
Bear Stearns collapse
Banks begin issuing govt. guaranteed debtBleak economic
releases globally
6INTERNATIONAL MONETARY FUND May 2009
Equity markets and consumer confidence may be stabilizing, albeit at very low levels.
Equities(1/1/2007=100; FTSE)
Consumer Confidence(Jan. 2005=100)
30
40
50
60
70
80
90
100
110
120
Jan-
07
Feb-0
7
Apr-0
7
Jun-
07
Jul-0
7
Sep-0
7
Nov-0
7
Dec-0
7
Feb-0
8
Apr-0
8
Jun-
08
Jul-0
8
Sep-0
8
Nov-0
8
Dec-0
8
Feb-0
9
Apr-0
9
U.S.JapanEuro areaU.K.
Lehman Brothers
0
20
40
60
80
100
120
140
160
Jan-
05
Jun-
05
Nov-0
5
Apr-0
6
Sep-0
6
Feb-0
7
Jul-0
7
Dec-0
7
May
-08
Oct-08
Mar
-09
U.S.JapanEuro areaU.K.
7INTERNATIONAL MONETARY FUND May 2009
Real GDP Growth(In percent; quarter on quarter annualized)
Unemployment Rate 1/(In percent)
Across the globe, GDP is falling and unemployment is rising . . .
1/ Aggregated using total labor force as weights.2/ Excludes China, India, Indonesia, Hungary, and Pakistan.
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Jan-
04
Jun-
04
Nov-0
4
Apr-0
5
Sep-0
5
Feb-0
6
Jul-0
6
Dec-0
6
May
-07
Oct-07
Mar
-08
Aug-0
8
Jan-
09
World Emerging markets 2/Industrial countries
-8
-4
0
4
8
12
Jun-
04
Dec-0
4
Jun-
05
Dec-0
5
Jun-
06
Dec-0
6
Jun-
07
Dec-0
7
Jun-
08
Dec-0
8
World Emerging marketsIndustrial countries
8INTERNATIONAL MONETARY FUND May 2009
. . . but the pace of contraction in economic activity is showing tentative signs of moderating. . .
Merchandise Exports(Annualized percent change) 1/
Industrial Production(Annualized percent change) 1/
-25
-20
-15
-10
-5
0
5
10
Jan-
00
Nov-0
0
Sep-0
1
Jul-0
2
May
-03
Mar
-04
Jan-
05
Nov-0
5
Sep-0
6
Jul-0
7
May
-08
Mar
-09
25
30
35
40
45
50
55
60
Global IP (left axis)
Global manufacturing PMI (sa,50+=expansion; right axis)
-80
-60
-40
-20
0
20
40
60
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
WorldEmerging marketsAdvanced economies
1/ Three-month moving average. 1/ Three-month moving average.
9INTERNATIONAL MONETARY FUND May 2009
. . . and falling demand and commodity prices should keep inflation in check.
Global Headline Inflation(Percent change from a year earlier)
-2
0
2
4
6
8
10World Emerging marketsIndustrial countries
10INTERNATIONAL MONETARY FUND May 2009
The global economy is set to contract in 2009 . . .
2009 2010
World -1.3 1.9
Advanced Economies -3.8 0.0United States -2.8 0.0Euro Area -4.2 -0.4Japan -6.2 0.8
Emerging and Developing Economies 1.6 4.0China 6.5 7.5India 4.5 5.6Russia -6.0 0.5
Real GDP Growth(In percent)
11INTERNATIONAL MONETARY FUND May 2009
. . . and to recover only gradually in 2010.
Recovery in 2010 is predicated on:
Concerted policy actions to stabilize financial conditions.
Strong macroeconomic policy support to bolster demand.
A gradual improvement in credit conditions.
Cushioning effect from sharply lower oil and commodity prices.
Nonetheless, output gaps will continue to widen through 2010, implying rising unemployment.
12INTERNATIONAL MONETARY FUND May 2009
Risks for the world economic outlookRisks for the world economic outlookare to the downside.are to the downside.
Further delays in implementing policies to stabilize financial conditions.
Deflation risks could reinforce a deeper and longer downturn.
Rising threat of corporate defaults in emerging economies.
Risks of trade and financial protectionism.
Sovereign fiscal sustainability concerns.
But, there is upside potential, hinging on bold implementation of policies.
13INTERNATIONAL MONETARY FUND May 2009
MENAP Economic Outlook MENAP Economic Outlook
►Oil exporters
►Oil importers
14INTERNATIONAL MONETARY FUND May 2009
Most oil exporters are maintaining high levels of capital spending.
Declining asset prices and slowing economies are putting some strain on corporate and bank balance sheets.
Oil Exporters: Key MessagesOil Exporters: Key Messages
15INTERNATIONAL MONETARY FUND May 2009
The collapse in oil prices has caused a drop in exports and government revenue.
0
20
40
60
80
100
120
140
2005 20102009200820072006
Crude Oil Price(APSP, In U.S. dollars per barrel)
Exports and Revenue
400
600
800
1,000
1,200
2005 2006 2007 2008 2009 2010
28
32
36
40
44
Exports (In billions of U.S. dollars, left axis)
Revenue (In percent of GDP, right axis)
16INTERNATIONAL MONETARY FUND May 2009
(In billions of U.S. dollars)
Governments are continuing to spend, and imports remain high.
300
500
700
900
2005 2006 2007 2008 2009 2010
Imports
Government expenditure
17INTERNATIONAL MONETARY FUND May 2009
(In percent of GDP)External and fiscal balances are deteriorating . . .
-6
0
6
12
18
24
2005 2006 2007 2008 2009 2010
Current account balance
Overall fiscal balance
-10
0
10
20
30
40
50
Bahrain Kuwait Oman Qatar SaudiArabia
UAE
2008
2009
Current account balance
-10
-5
0
5
10
15
20
25
30
35
Bahrain Kuwait Oman Qatar SaudiArabia
UAE
2008
2009
'
Overall fiscal balance
18INTERNATIONAL MONETARY FUND May 2009
… but contributing to global demand.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2005 2006 2007 2008 2009 2010
GCCNon-GCC
Imports(In percent of world imports)
19INTERNATIONAL MONETARY FUND May 2009
Despite monetary easing, credit to the private sector has declined.
Interest Rates(In percent)
Private Sector Credit Growth(Percent change)
5
10
15
20
25
30
35
40
2005 2006 2007 2008 2009 2010
MEOE
GCC
0
1
2
3
4
5
6
2007 2008 2009
BHRKWTQATSAUUAE
20INTERNATIONAL MONETARY FUND May 2009
Asset values have fallen and . . .
90
100
110
120
130
Mar-08 Jun-08 Sep-08 Dec-08
BHRKWTOMNQATSAUU.A.E.
Change in Stock Market Indices(Jan 01, 2008 – Apr 30, 2009, in percent)
Real Estate Price Index(March 2008=100)
-73
-48
-44
-44
-42
-42
-41
-40
-80 -70 -60 -50 -40 -30 -20 -10 0
Dubai
Saudi Arabia
Abu Dhabi
Oman
Bahrain
Qatar
S&P 500
Kuwait
21INTERNATIONAL MONETARY FUND May 2009
Credit Default Swap Spreads(In basis points; Aug 1, 2008 – Apr 29, 2009)
. . . some financial sector indicators have worsened.
Corporate Profits(Q4 2008 over Q4 2007)
-250
-200
-150
-100
-50
0
KWT UAE QAT BHR OMN
0
100
200
300
400
500
600
700
Aug-08 Sep-08 Nov-08 Dec-08 Feb-09 Apr-09
BHRQATSAUUAE
22INTERNATIONAL MONETARY FUND May 2009
Growth has slowed sharply, especially in the oil sector, but inflation has come down.
Growth and Inflation, 2007-10(In percent)
1/ Excludes Sudan.
GCC Other TotalProj. Proj. Proj. Proj. Proj. Proj.
2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010
Real GDP growth 5.1 6.4 1.3 4.2 6.8 4.5 3.1 3.4 6.0 5.4 2.3 3.8Oil1 1.0 4.5 -4.3 3.5 1.4 0.6 -2.9 -1.0 1.2 2.4 -3.5 1.1Non-oil1 6.9 7.2 3.2 3.9 7.6 5.3 4.2 3.8 7.3 6.1 3.7 3.8
Inflation 6.3 10.7 5.3 4.8 13.7 19.9 13.9 11.6 10.3 15.6 10.0 8.5
23INTERNATIONAL MONETARY FUND May 2009
Oil and Non-oil GDP Growth in the GCC, 2009
14
-15
-10
-5
0
5
10
15
20
25
30
Bahrain Kuwait Oman Qatar SaudiArabia
UAE
Oil Non-oilOverall
(Annual percent change)
24INTERNATIONAL MONETARY FUND May 2009
Risks to the OutlookRisks to the Outlook
Prolonged global recession
Further deterioration in balance sheets of financial institutions
but
Economic fundamentals remain strong
Reserves remain large
25INTERNATIONAL MONETARY FUND May 2009
Policy PrioritiesPolicy Priorities
Maintain public expenditure subject to fiscal sustainability.
In countries with more limited fiscal space, prioritize expenditure.
Keep a close eye on the banking system.
Press ahead with structural reforms.
26INTERNATIONAL MONETARY FUND May 2009
Growth is slowing, and financial sectors are showing some signs of vulnerability.
Protected by oil exporters’ continued spending, the impact on growth has, so far, been moderate.
But a prolonged recession in partner countries could have a significant impact on growth, and unemployment and poverty could rise substantially.
Oil Importers: Key MessagesOil Importers: Key Messages
27INTERNATIONAL MONETARY FUND May 2009
In line with lower growth in major trading partners, foreign inflows are weakening.
-6
-4
-2
0
2
4
6
8
U.S. Euro Area GCC
20082009
Real GDP Growth(In percent)
Foreign Inflows(In billions of U.S. dollars)
0
20
40
60
80
100
120
140
160
180
200
Exports Remittances Tourism Foreign directinvestment
20082009
28INTERNATIONAL MONETARY FUND May 2009
Effective exchange rates have appreciated.
Effective Exchange Rates(Annual percent change, Jan 2008 - Jan 2009)
-20
-10
0
10
20
30
DJI EGY JOR LBN MRT MAR PAK SYR TUN
Nominal
Real
29INTERNATIONAL MONETARY FUND May 2009
Current Account Balance(In percent of GDP)
But current account deficits are projected to decline somewhat.
-40
-30
-20
-10
0
AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN
20082009
30INTERNATIONAL MONETARY FUND May 2009
Credit growth to the private sector is decreasing.
Private Sector Credit Growth(Percent change)
5
10
15
20
2005 2006 2007 2008 2009 2010
31INTERNATIONAL MONETARY FUND May 2009
There is limited fiscal space for countercyclical spending.
Fiscal Accounts(In percent of GDP)
-7
-6
-5
-4
-3
-2
2005 2006 2007 2008 2009 2010
15
18
21
24
27
30
Overall fiscal blance (left axis)Total revenue (right axis)Total expenditure (right axis)
32INTERNATIONAL MONETARY FUND May 2009
Financial indicators are weakening but,so far, are manageable.
Change in Stock Market Indices(Jan 1, 2008 – Apr 30, 2009)
Sovereign Bond Spreads(In basis points, Jan 1, 2008 – Apr 30, 2009)
0
500
1000
1500
2000
2500
Jan-
08
Mar
-08
Apr-0
8
Jun-
08
Aug-0
8
Oct-08
Dec-0
8
Feb-0
9
Apr-0
9
EMBIG
Pakistan
Egypt
Lebanon
30
-25
-28
-47
-51
-45
-14
-80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40
Tunisia
Morocco
JORDAN
Lebanon
MCSI Emerging Markets
Pakistan
Egypt
33INTERNATIONAL MONETARY FUND May 2009
Growth has fallen,but inflation has also come down.
Real GDP Growth(In percent)
Consumer Price Inflation(Average; annual changes in percent)
0
2
4
6
8
10
AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN
20082009
0
5
10
15
20
25
30
35
AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN
20082009
34INTERNATIONAL MONETARY FUND May 2009
Unemployment is already high, and economic slowdown is likely to raise it further.
Jobs Needed to Maintain 2008 Unemployment Rate
(In millions)
0
0.5
1
1.5
2
EGY JOR MAR PAK TUN
0
5
10
15
EGY JOR MAR PAK TUN
Unemployment Rate(In percent)
35INTERNATIONAL MONETARY FUND May 2009
Risks to the OutlookRisks to the Outlook
Prolonged recession in trading partners and
Reduced availability of external financing
could lead to . . .
Worse outcomes on growth and employment
Weaker corporate and bank balance sheets
36INTERNATIONAL MONETARY FUND May 2009
Policy PrioritiesPolicy Priorities
Quickly make use of limited scope for countercyclical policy.
Protect vulnerable groups.
Press ahead with growth-enhancing reforms.
37
Thank you