The IMF says that the global economic outlook will improve over the next 12 months. As a result, the fund has raised its forecast for annual real gross domestic product (GDP) growth for the Middle East in 2002 to 3.5 per cent, having previously set the figure at 3.1 per cent in an earlier forecast in April. Economic growth is expected to gather pace in 2003, with real GDP growth forecast to rise to 4.6 per cent from an earlier figure of 4.4 per cent. Real GDP growth is expected to rise to 4.2 per cent in the Maghreb in 2003, compared with an earlier forecast of 4.0 per cent, though lower than anticipated growth from Algeria has led the IMF to scale back its regional forecast for 2002 to 3.1 per cent.

The IMF expects Iran to be one of the region's star performers, with GDP forecast to rise by 5.8 per cent in 2002 and 5.5 per cent in 2003. The fund's forecast for economic growth in Kuwait in 2003 has almost doubled to 3.3 per cent from an earlier estimate of 1.7 per cent.

The forecast rise in GDP comes after a weakening of the wealthiest regional economies prompted by lower oil sector real GDP growth, resulting from the reduction in production quotas, and the general global slowdown over the past two year. Such factors prompted the IMF to revise down its estimates for the GDP growth of regional oil producers in 2001.

Estimates for economic growth in Saudi Arabia were reduced to 1.2 per cent for 2001 from an earlier forecast of 2.2 per cent. Anticipated GDP growth for the same period in Iran was cut to 4.8 per cent from 5.1 per cent, while estimated economic growth in Kuwait in 2001 was slashed to -1.0 per cent from earlier predictions of 2.7 per cent.

Elsewhere, security concerns have weakened regional growth, particularly in the West Bank/Gaza, but also in Egypt, where there was a sharp decline in tourism following the 11 September attacks on the US. Economic prospects there have brightened in recent months following a slight recovery in tourism, with the IMF now forecasting GDP growth of 2 per cent for 2002 from the earlier figure of 1.7 per cent.

For economic growth to pick up further, the IMF says regional governments must reduce tariff and non-tariff trade restrictions, which are much higher in Mashreq and Maghreb countries than other developing countries. 'Gross trade in the Mashreq is particularly low, reflecting the impact of trade restrictions, real exchange rate appreciations during the 1990s and political uncertainties,' the report says. 'This suggests there is substantial scope for increased regional and international trade integration to help support stronger growth.'