Regional Economic Outlook

Outline

Multi-speed recovery

Global Stocks(Morgan Stanley MSCI Stock Price Indices in U.S.

Dollars, MER Weighted; 2007 = 100)

1 Averages of BB-B US, BB-B Euro, and BBB Japan corporate bond spreads.

Sovereign and Corporate Bond Spreads(Basis points)

Global financial markets have recovered faster than expected

Emerging Market External Bond and Equity Issuance (Billions of U.S. dollars)

Capital flows have returned to emerging markets after sudden stop

Source: Bank of England, European Central Bank, and the Federal Reserve Board.

Private Credit Growth (Annualized percent change of 3mma over previous 3mma)

Banks need to rebuild capital

Bank credit remains hard to come by in many countries

Real GDP Growth(Percentage growth from previous year)

Fading fiscal stimulus

Less inventory restocking

will hold back growth later in 2010 and 2011

World economy set for a further recovery at varying speeds

Global GDP(Index, 2006=100)

Global financial crisis is leaving lasting scars on output levels

Devise credible exit strategies—medium-term fiscal consolidation plans urgently needed

Repair and reform financial systems

Combat unemployment

Manage capital flows

Global Policy Challenges

MENAP Oil Exporters

Afghanistan

Pakistan

IranIraq

Saudi Arabia

Yemen

Oman

QatarBahrain

Kuwait

Sudan

LibyaAlgeria

Morocco

Mauritania

Lebanon Syria

Jordan

Tunisia

Djibouti

Egypt United

Arab Emira

tes

West Bank & Gaza

Oil Exporters: Key Messages

Recovery is underway, driven by rising oil demand and continued supportive policies

Continue stimulus where there is fiscal room, to boost non-oil sector activity

Barring signs of overheating, accommodative monetary policy is appropriate to mitigate the current credit bust

Capital flows are recovering, but greater differentiation of sovereign risk can be expected, following Dubai World and Greece events

Rising oil prices have spurred recovery in exports and local stock markets

Merchandise Trade and Crude Oil Prices(Billions of U.S. dollars unless otherwise indicated)

Stock Markets(Indices: August 2008 = 100)

Source: IMF, Direction of Trade Statistics; IMF, International Financial Statistics. Source: Bloomberg.

Exports are recovering from early 2009 lows Stock markets have risen, even after Dubai World event

0

20

40

60

80

100

120

140

160

30

40

50

60

70

80

90

100

110

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

Exports

Imports

Crude oil; Dated Brent, WTI, and Dubai Fateh ($/barrel, right scale)

0

20

40

60

80

100

120

140

Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10

BHR KWT QTR

SAU DUB ABU

IRN

GreeceDubai World

Overall fiscal balances will also improve, even with continued stimulus

Government Fiscal Balance(Percent of GDP)

Government Expenditure(Percent of GDP)

…as oil-related revenues rise

Sources: National authorities; and IMF staff estimates.

-5

0

5

10

15

20

25

30

2008 2009 2010

GCC

Non-GCC

MENAP Oil Exporters

0

10

20

30

40

2008 2009 2010

GCC

Non-GCC

MENAP Oil Exporters

Real GDP Growth(Percent)

Looking to 2010, recovery will continue

External environment is projected to be favorable to the oil sector

Non-oil sector will continue to be buoyed by accommodative macro policy

Overall future growth rates to remain lower than precrisis, but more sustainable

Source: National Authorities; and IMF staff estimates.

External balances are projected to improve

…as oil prices and crude oil production rise in 2010

Current Account Balances(Billions of U.S. dollars unless otherwise indicated)

Sources: National authorities; and IMF staff estimates.

Oil price uncertainty going forwardWTI Oil Price Prospects1

(U.S. dollars per barrel)

Sources: Bloomberg; and IMF staff calculations.1Derived from prices of futures options on May 17, 2010.

0

20

40

60

80

100

120

140

160

180

200

Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12

95% confidence interval

86% confidence interval

68% confidence interval

Futures

Clouding the horizon: sluggish post-crisis credit growth

Credit growth has slowed appreciably

Sources: National Authorities; and IMF, International Financial Statistics.1Excludes Iran, Iraq, and Libya due to data limitations.

Credit and Deposit Growth1

(PPP GDP weighted year-on-year growth rates, percent)

4

8

12

16

20

24

28

32

36

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

Credit to private sector

Deposits

…and inflation generally not a concern

Sources: National authorities.

Inflation(Consumer price index, year-on-year growth, percent)

-10

-5

0

5

10

15

20

25

30

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10

BHR IRN IRQ KWT LBYOMN SAU SDN UAE YMN

-10%

0%

10%

20%

30%

40%

50%

60%

-4 -2 0 2 4 6 8 10 12 14 16

Rea

l cre

dit g

row

th (Y

ear-

on-y

ear)

Historical median

Saudi Arabia 2008 boom

United Arab Emirates 2008 boom

Slow credit growth is likely to persist

Historical patterns show protracted period of sluggishness following booms

Sources: IMF, International Financial Statistics; and staff calculations.Note: Unweighted average of real credit growth around boom years identified between 1983 and 2008. Credit was deflated by the CPI index. Boom year in shaded area.

Real credit surrounding credit booms (Percent change)

Quarters

Capital inflows: boom, bust, and partial recoveryCapital Flows(Percent of GDP)

Large increase in inflows to the Gulf up to 2007, followed by reversal of mainly non-FDI flows…

…while international issuance has begun to recover, concentrated in bonds and in the Gulf

Sources: IMF, World Economic Outlook.

0

50

100

150

200

0

10

20

30

40

2003 04 05 06 07 08 09

Equity

Syndicated Loans

External Bonds

Emerging markets total (right scale)

MENAP Oil Exportrers

International Issuance(Billions of U.S. dollars)

Dubai World event led todisruption in bond issuance

-10

0

10

20

30

2003

2004

2005

2006

2007

2003

2004

2005

2006

2007

2008

2009

Inward FDI

Change in portfolio and other investment liabilities

MENAP oil exporters Emerging and developing economies

2009

2008

MENAP Oil Importers

Afghanistan

Pakistan

IranIraq

Saudi Arabia

Yemen

Oman

QatarBahrain

Kuwait

Sudan

LibyaAlgeria

Morocco

Mauritania

Lebanon Syria

Jordan

Tunisia

Djibouti

Egypt United

Arab Emira

tes

West Bank & Gaza

Oil Importers: Key Messages

The region is slowly recovering from last year’s slowdown

Trade is rising along with the global rebound Investment and bank credit are still subdued

Obstacles to growth ahead and room for stimulus is narrowing

Persistent weakness in EU demand and competition from other emerging markets

Governments facing high debt will need to cut back on fiscal expansion

High inflation in some countries

Policy focus will need to shift to medium-term structural agenda

Raising growth and creating employment is again at center stage

Developing capital markets can help revive credit and investment

Structural reforms key to improving competitiveness

International trade is mending…Merchandise Trade in U.S. dollars1

(Annual percent change of 3-month moving average)External Receipts(Billions of U.S. dollars)

Sources: National authorities; and Haver Analytics.¹ Egypt, Jordan, Lebanon, Morocco, Pakistan, and Tunisia.

Sources: IMF, World Economic Outlook; National authorities; and IMF staff estimates.¹ Excludes Afghanistan, Mauritania, and Pakistan.2Excludes Afghanistan and Djibouti.

0

20

40

60

80

100

120

Export of goods Tourist receipts¹ Remittances² FDI

2008 2009 2010 proj.

Trade is recovering after the sharp fall during the global crisis

But expansion will be slow, with exports and FDI still well below 2008 levels

-40

-20

0

20

40

60

80

100

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

Exports

Imports

…and financial markets have rebounded

Stock Market Indices(January 1, 2007 = 100)

Sovereign Bond Spreads(Basis Points)

Source: Bloomberg.1Morgan Stanley Capital International Index, emerging markets.

Source: Bloomberg.

Stocks are up, but - aside from Tunisia - still well below earlier highs

Bond spreads have narrowed over the past year; little impact so far from Greece

0

40

80

120

160

200

240

EGY JOR LBN MAR PAK TUN MSCI¹

Latest (16-May-10)

Ranges since January 1, 2007

0

500

1,000

1,500

2,000

2,500

0

200

400

600

800

1,000

Jan-09 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

EGY LBN

MAR TUN

EMBIG PAK (right scale)

But credit and capital inflows still sluggish

Bank Credit to the Private Sector(Year-on-year growth, in percent)

International Issuance(Billions of U.S. dollars)

Source: National Authorities and IMF staff calculations. Source: Dealogic.

Credit growth has fallen sharply in several countries

Capital inflows to the region have been slow to come back and equity still lagging

-5

0

5

10

15

20

25

30

35

DJI EGY JOR LBN MAR PAK TUN

Jun-08 Feb-10

0

50

100

150

200

0

3

6

9

12

2003 04 05 06 07 08 09

Equity

Syndicated Loans

External Bonds

Emerging markets total (right scale)

MENAP Oil Importers

Growth picking up, but falling short of other EMs

Region is rebounding, but less so than comparators

Source: National Authorities; and IMF staff estimates.

Real GDP Growth(Percent)

Trade linkages to Europe highest in the Maghreb

Europe share of total merchandise exports, 2009(Percent)

Sources: Direction of Trade Statistics, IMF

0 10 20 30 40 50 60 70 80

YMNSDNBHR

OMNKGZJORUAEAFG

KWTUZBSAU

DJIQATLBNTJKIRNPAKIRQ

TKMSYR

MRTEGYGEOKAZ

ARMAZEDZA

MARTUNLBY

Limited room for further policy stimulus

Inflation pressures mount in several countries, limiting room for monetary policy

High public debt levels constrain fiscal policy options

Sources: National Authorities; and IMF staff estimates.Sources: National Authorities.

Prices(Annual percent change)

Fiscal Deficit and Public Debt, 2010(Percent of GDP)

End-2010

Competitive challenges are again at the fore

Exports continue to underperform Business environment mostly lagging

Sources: World Bank; and World Economic Forum.Source: IMF, World Economic Outlook.Note: Excludes oil exports.

Exports Per Capita(Percent of world average)

Competitiveness Indicators(Latest rankings)

10

15

20

25

30

35

40

1990 1995 2000 2005 2010

MENAP oil importers

Emerging and developing economies

Emerging and developing

economy averageMENAP Oil Importers average

EGY

JOR

MRT

MAR

PAK

SYR

TUN

0

40

80

120

160

200020406080100120140

Ease

of D

oing

Bus

ines

s(R

anki

ng a

mon

g 18

3 co

untri

es)

Global Competitiveness Index(Ranking among 134 countries)

More competitive

Unemployment looms large

Unemployment and Growth1

(Percent)High unemployment

Spillovers from a tepid recovery in Europe

Large structural component

Government jobs not the solution

Weakened prospects for exports and remittances

Impact on development aid?

Sources: National Authorities; and IMF staff estimates.1Egypt, Jordan, Morocco, and Tunisia.

0

1

2

3

4

5

6

7

8

0

2

4

6

8

10

12

14

16

1990 1993 1996 1999 2002 2005 2008

Unemployment rate

Real GDP growth (right scale)

Growth and job creation will have to come from the private sector

Focus on enhancing business environment, labor market flexibility, and education systems

Gear fiscal and monetary policy to creating supportive conditions: strengthening revenue, scaling back subsidies, and addressing NPLs

Policy Priorities

Fiscal stimulus: until private-sector activity regains momentum

Monetary support/regulatory policy: balance goal of supporting credit growth with that of financial stability

Ensure smooth process of cleanup of bank balance sheets: upfront recognition of losses and bank recapitalization if needed

Structural reforms to improve competitiveness

Oil Importers

Maintain fiscal and monetary stimulus as conditions permit

Oil Exporters

Develop local capital markets to provide alternatives to bank credit

Please visit the IMF’s website

Full report: Full report: http://www.imf.org/external/pubs/http://www.imf.org/external/pubs/

ft/reo/2010/MCD/eng/mreo0510.htmft/reo/2010/MCD/eng/mreo0510.htm

What do you think?What do you think?Make your point on the related blogs:Make your point on the related blogs:

http://blog-imfdirect.imf.orghttp://blog-imfdirect.imf.org