Moody's cuts regional growth forecast by 2 per cent over political unrest

08 March 2011

Increased spending in wake of protests will also strain finances

Economic growth in the Middle East will be up to 2 per cent lower than expected because of the impact of political turmoil brought on by widespread public protests throughout the region, according to ratings agency Moody’s Investment Services.

“Political unrest will drag on regional economic growth,” says Moody’s sovereign rating analyst, Tristan Cooper. “Before this turmoil began, the region had a respectable, but not stellar, growth outlook.”

He adds: “It is difficult to know how this situation will play out – it is highly uncertain - but around 2 per cent of real growth is likely to have been shaved off regional economic performance this year.”

In January, the International Monetary Fund (IMF) predicted that the Middle East and North Africa region would grow by 4.4 per cent after lowering its earlier forecast of 4.9 per cent.

Although the rise in oil prices acts as a hedge against unrest in the region, Cooper says that break-even oil prices for regional government budgets will rise this year as a result of the handouts announced by policymakers to appease protests and get them off the streets. “Breakeven oil prices will rise significantly this year and next as a result of the fiscal expansion announced by governments in the region.”

A raft of new spending measures have been announced by regional governments in response to the protests. The most significant of these has been Saudi Arabia’s plans to spend $36bn on a mixture of unemployment benefits, housing financing, pay rises and debt write-offs.

Elsewhere in the region, the UAE has promised to invest $1.5bn in infrastructure in the northern emirates, while Bahrain has said it will give every family a one-off gift of BD1,000 ($2,650).

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