The Middle East and North Africa (Mena) is expected to suffer a significant slowdown in its economic recovery as a result of the sustained political unrest now affecting almost every country in the region.
The Mena countries, already underperforming global emerging markets, could lose up to 2 per cent of the economic growth forecast for 2011. The impact of protests across the region could even stretch into 2012.
Economists are currently revising down their forecasts for economic growth in the region. Among the most significant revisions is Egyptian investment bank EFG Hermes, which has cut its forecast for 11 countries in the Mena region to 3.6 per cent, from 5.4 per cent.
Ratings agency Moody’s Investors Service has cut its 2011 forecast from 4.2 per cent to about 3 per cent and said that growth in 2012 could be about 3.8 per cent, down from a previous forecast of around 4.4 per cent.
“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.”
John Sfakianakis, chief economist at Banque Saudi Fransi, says he is in the process of revising his forecast for regional growth down from 4.2 per cent in 2011, with the loss of at least one percentage point from growth.
The general consensus among economists is that the political turmoil has hit consumer confidence across the region, will cause delays in foreign investment decisions and make already cautious banks even more nervous about lending. The result will be another year of weak growth in the non-oil sector.
“Prior to the start of protests the recovery in the region was tentative. That is now likely to have been derailed somewhat,” says Liz Martins, senior economist at HSBC.
“We are substantially less optimistic than we were. There has been a generalised dip in confidence, banks are not lending and FDI [foreign direct investment] will be lower. The flipside is higher oil prices will help the oil exporting countries.” HSBC has already revised down its forecast for growth in Egypt, and is reviewing its growth forecasts for the rest of region.
Prior to the start of protests the recovery … was tentative. That has now been derailed somewhat
Liz Martins, HSBC
The impact of political instability on the oil price, which hit a 30 month intra-day high near $120 a barrel in early March, will be a boost for the oil exporting countries. However, much of that will be absorbed by increased spending announced to appease protesters. “Breakeven oil prices will rise significantly this year and next as a result of the fiscal expansion announced by governments in the region,” says Cooper.
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).
Martins adds that the boost to oil sector gross domestic product (GDP) growth “is a compensation, but may also be accompanied by an unwelcome delay in the private sector recovery”.
Some economist have yet to alter their views on the region. National Bank of Abu Dhabi says its GCC forecast was unchanged while they waited to see how long political unrest and high oil prices lasted. Emirates NBD echoed those sentiments.
Several more protests are planned to occur throughout March, including in Saudi Arabia on 11 March, and protests continue in countries including Bahrain, Egypt, Oman, Libya and Yemen.
The revision of growth forecasts is bad news for the region, which analysts had hoped would finally start a robust economic recovery this year after trailing growth in other emerging markets following the financial crisis.
Emerging markets are forecast to grow by more than 6 per cent in 2011. Slow credit growth, coupled with suspicions that regional corporate had not yet fully accounted for losses during 2009-10 have made investors reluctant to put fresh money into the region since the financial crisis.