The World Bank is forecasting that economic growth in the Middle East could average just under 3 per cent a year between now and 2009, nearly 1 per cent higher than in the last decade. But the bank warns that this forecast could be torpedoed if oil prices fall more than it anticipates.

‘Real oil prices fell by nearly 8 per cent a year in 1981-95. The possibility of a further decline is a significant risk to the long-term forecast, which expects growth in the region to pick up to about 3 per cent from 2 per cent (in the last decade).’ the bank said in its latest Global Economic Prospects.

The bank is basing its growth forecast on the assumption that Iraq will return to the oil markets and that real oil prices will fall 7 per cent during this year and 5 per cent next year before stabilising to give an average annual decline of 1.4 per cent for the decade. ‘This increasingly less favourable environment implies an urgent need for structural adjustments and reforms (to the economies of Middle Eastern states),’ the report warns.

The report lists several other issues which it says will affect the long-term outlook. Alongside the familiar call for more rapid progress on structural reforms, it says growth would be boosted by greater integration with the world economy, especially through formal agreements with the EU, progress in the peace process and what it referred to as ‘institutional development to alleviate high internal socio-political tensions.’

The report notes that Morocco and Tunisia have already signed agreements with the EU which will produce a beneficial liberalisation of their trade, and other countries around the Mediterranean are expected to follow suit. ‘Although it will take a number of years for the direct effect of the EU’s Mediterranean Initiative to become evident, it is hoped that the participants’ commitment to reform will set the stage for improved competitiveness and higher foreign direct investment flows in the medium term.’

Although obstacles remain in the path of the peace process, the bank notes a significant upturn in tourism in some countries during 1995 as evidence that the region is being perceived as more secure.