1 Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan Masood Ahmed...

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Regional Economic OutlookRegional Economic OutlookMiddle East, North Africa, Afghanistan, and PakistanMiddle East, North Africa, Afghanistan, and Pakistan

Masood AhmedDirector, Middle East and Central Asia Department

International Monetary FundInternational Monetary FundMay 2009

2INTERNATIONAL MONETARY FUND May 2009

MENAP CountriesMENAP Countries

Oil Exporters (12)

Oil Importers (10)

Mauritania

Libya

Tunisia

U.A.E.

Somalia

Afghanistan

Sudan

Egypt

Algeria

MoroccoIran

Pakistan

Oman

Iraq

Yemen

SaudiArabia

Djibouti

Kuwait

Bahrain

West Bank and Gaza

Qatar

Syria

Lebanon

Jordan


OutlineOutline

World Economic Outlook

MENAP Economic Outlook


World Economic Outlook: Key MessagesWorld Economic Outlook: Key Messages

Financial markets remain highly stressed.

The world economy will contract in 2009 by around 1¼ percent before recovering gradually in 2010.

Emerging economies face dramatic drops in capital inflows, demand for their exports, and commodity prices.

A third wave of the global financial crisis is hitting the world’s poorest and most vulnerable countries.

Turning around global growth depends critically on concerted policy actions to stabilize financial conditions, as well as sustained strong policy support to bolster demand.


CDS Spreads for High-Grade Financials (Basis points)

Systemic risks remain elevated despite forceful policy efforts.

Source: Bloomberg.

0

100

200

300

400

500

600

Jan-

07

Feb-0

7

Apr-0

7

Jun-

07

Jul-0

7

Sep-0

7

Nov-0

7

Dec-0

7

Feb-0

8

Apr-0

8

Jun-

08

Jul-0

8

Sep-0

8

Nov-0

8

Dec-0

8

Feb-0

9

Apr-0

9

0

40

80

120

160

200

240U.S. (left axis)

Europe (right axis)

Lehman Bros. bankruptcy

Bear Stearns collapse

Banks begin issuing govt. guaranteed debtBleak economic

releases globally


Equity markets and consumer confidence may be stabilizing, albeit at very low levels.

Equities(1/1/2007=100; FTSE)

Consumer Confidence(Jan. 2005=100)

30

40

50

60

70

80

90

100

110

120

Jan-

07

Feb-0

7

Apr-0

7

Jun-

07

Jul-0

7

Sep-0

7

Nov-0

7

Dec-0

7

Feb-0

8

Apr-0

8

Jun-

08

Jul-0

8

Sep-0

8

Nov-0

8

Dec-0

8

Feb-0

9

Apr-0

9

U.S.JapanEuro areaU.K.

Lehman Brothers

0

20

40

60

80

100

120

140

160

Jan-

05

Jun-

05

Nov-0

5

Apr-0

6

Sep-0

6

Feb-0

7

Jul-0

7

Dec-0

7

May

-08

Oct-08

Mar

-09

U.S.JapanEuro areaU.K.


Real GDP Growth(In percent; quarter on quarter annualized)

Unemployment Rate 1/(In percent)

Across the globe, GDP is falling and unemployment is rising . . .

1/ Aggregated using total labor force as weights.2/ Excludes China, India, Indonesia, Hungary, and Pakistan.

4.5

5.5

6.5

7.5

8.5

9.5

10.5

Jan-

04

Jun-

04

Nov-0

4

Apr-0

5

Sep-0

5

Feb-0

6

Jul-0

6

Dec-0

6

May

-07

Oct-07

Mar

-08

Aug-0

8

Jan-

09

World Emerging markets 2/Industrial countries

-8

-4

0

4

8

12

Jun-

04

Dec-0

4

Jun-

05

Dec-0

5

Jun-

06

Dec-0

6

Jun-

07

Dec-0

7

Jun-

08

Dec-0

8

World Emerging marketsIndustrial countries


. . . but the pace of contraction in economic activity is showing tentative signs of moderating. . .

Merchandise Exports(Annualized percent change) 1/

Industrial Production(Annualized percent change) 1/

-25

-20

-15

-10

-5

0

5

10

Jan-

00

Nov-0

0

Sep-0

1

Jul-0

2

May

-03

Mar

-04

Jan-

05

Nov-0

5

Sep-0

6

Jul-0

7

May

-08

Mar

-09

25

30

35

40

45

50

55

60

Global IP (left axis)

Global manufacturing PMI (sa,50+=expansion; right axis)

-80

-60

-40

-20

0

20

40

60

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

WorldEmerging marketsAdvanced economies

1/ Three-month moving average. 1/ Three-month moving average.


. . . and falling demand and commodity prices should keep inflation in check.

Global Headline Inflation(Percent change from a year earlier)

-2

0

2

4

6

8

10World Emerging marketsIndustrial countries


The global economy is set to contract in 2009 . . .

2009 2010

World -1.3 1.9

Advanced Economies -3.8 0.0United States -2.8 0.0Euro Area -4.2 -0.4Japan -6.2 0.8

Emerging and Developing Economies 1.6 4.0China 6.5 7.5India 4.5 5.6Russia -6.0 0.5

Real GDP Growth(In percent)


. . . and to recover only gradually in 2010.

Recovery in 2010 is predicated on:

Concerted policy actions to stabilize financial conditions.

Strong macroeconomic policy support to bolster demand.

A gradual improvement in credit conditions.

Cushioning effect from sharply lower oil and commodity prices.

Nonetheless, output gaps will continue to widen through 2010, implying rising unemployment.


Risks for the world economic outlookRisks for the world economic outlookare to the downside.are to the downside.

Further delays in implementing policies to stabilize financial conditions.

Deflation risks could reinforce a deeper and longer downturn.

Rising threat of corporate defaults in emerging economies.

Risks of trade and financial protectionism.

Sovereign fiscal sustainability concerns.

But, there is upside potential, hinging on bold implementation of policies.


MENAP Economic Outlook MENAP Economic Outlook

►Oil exporters

►Oil importers


Most oil exporters are maintaining high levels of capital spending.

Declining asset prices and slowing economies are putting some strain on corporate and bank balance sheets.

Oil Exporters: Key MessagesOil Exporters: Key Messages


The collapse in oil prices has caused a drop in exports and government revenue.

0

20

40

60

80

100

120

140

2005 20102009200820072006

Crude Oil Price(APSP, In U.S. dollars per barrel)

Exports and Revenue

400

600

800

1,000

1,200

2005 2006 2007 2008 2009 2010

28

32

36

40

44

Exports (In billions of U.S. dollars, left axis)

Revenue (In percent of GDP, right axis)


(In billions of U.S. dollars)

Governments are continuing to spend, and imports remain high.

300

500

700

900

2005 2006 2007 2008 2009 2010

Imports

Government expenditure


(In percent of GDP)External and fiscal balances are deteriorating . . .

-6

0

6

12

18

24

2005 2006 2007 2008 2009 2010

Current account balance

Overall fiscal balance

-10

0

10

20

30

40

50

Bahrain Kuwait Oman Qatar SaudiArabia

UAE

2008

2009

Current account balance

-10

-5

0

5

10

15

20

25

30

35


UAE

2008

2009

'

Overall fiscal balance


… but contributing to global demand.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2005 2006 2007 2008 2009 2010

GCCNon-GCC

Imports(In percent of world imports)


Despite monetary easing, credit to the private sector has declined.

Interest Rates(In percent)

Private Sector Credit Growth(Percent change)

5

10

15

20

25

30

35

40

2005 2006 2007 2008 2009 2010

MEOE

GCC

0

1

2

3

4

5

6

2007 2008 2009

BHRKWTQATSAUUAE


Asset values have fallen and . . .

90

100

110

120

130

Mar-08 Jun-08 Sep-08 Dec-08

BHRKWTOMNQATSAUU.A.E.

Change in Stock Market Indices(Jan 01, 2008 – Apr 30, 2009, in percent)

Real Estate Price Index(March 2008=100)

-73

-48

-44

-44

-42

-42

-41

-40

-80 -70 -60 -50 -40 -30 -20 -10 0

Dubai

Saudi Arabia

Abu Dhabi

Oman

Bahrain

Qatar

S&P 500

Kuwait


Credit Default Swap Spreads(In basis points; Aug 1, 2008 – Apr 29, 2009)

. . . some financial sector indicators have worsened.

Corporate Profits(Q4 2008 over Q4 2007)

-250

-200

-150

-100

-50

0

KWT UAE QAT BHR OMN

0

100

200

300

400

500

600

700

Aug-08 Sep-08 Nov-08 Dec-08 Feb-09 Apr-09

BHRQATSAUUAE


Growth has slowed sharply, especially in the oil sector, but inflation has come down.

Growth and Inflation, 2007-10(In percent)

1/ Excludes Sudan.

GCC Other TotalProj. Proj. Proj. Proj. Proj. Proj.

2007 2008 2009 2010 2007 2008 2009 2010 2007 2008 2009 2010

Real GDP growth 5.1 6.4 1.3 4.2 6.8 4.5 3.1 3.4 6.0 5.4 2.3 3.8Oil1 1.0 4.5 -4.3 3.5 1.4 0.6 -2.9 -1.0 1.2 2.4 -3.5 1.1Non-oil1 6.9 7.2 3.2 3.9 7.6 5.3 4.2 3.8 7.3 6.1 3.7 3.8

Inflation 6.3 10.7 5.3 4.8 13.7 19.9 13.9 11.6 10.3 15.6 10.0 8.5


Oil and Non-oil GDP Growth in the GCC, 2009

14

-15

-10

-5

0

5

10

15

20

25

30


UAE

Oil Non-oilOverall

(Annual percent change)


Risks to the OutlookRisks to the Outlook

Prolonged global recession

Further deterioration in balance sheets of financial institutions

but

Economic fundamentals remain strong

Reserves remain large


Policy PrioritiesPolicy Priorities

Maintain public expenditure subject to fiscal sustainability.

In countries with more limited fiscal space, prioritize expenditure.

Keep a close eye on the banking system.

Press ahead with structural reforms.


Growth is slowing, and financial sectors are showing some signs of vulnerability.

Protected by oil exporters’ continued spending, the impact on growth has, so far, been moderate.

But a prolonged recession in partner countries could have a significant impact on growth, and unemployment and poverty could rise substantially.

Oil Importers: Key MessagesOil Importers: Key Messages


In line with lower growth in major trading partners, foreign inflows are weakening.

-6

-4

-2

0

2

4

6

8

U.S. Euro Area GCC

20082009


Foreign Inflows(In billions of U.S. dollars)

0

20

40

60

80

100

120

140

160

180

200

Exports Remittances Tourism Foreign directinvestment

20082009


Effective exchange rates have appreciated.

Effective Exchange Rates(Annual percent change, Jan 2008 - Jan 2009)

-20

-10

0

10

20

30

DJI EGY JOR LBN MRT MAR PAK SYR TUN

Nominal

Real


Current Account Balance(In percent of GDP)

But current account deficits are projected to decline somewhat.

-40

-30

-20

-10

0

AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN

20082009


Credit growth to the private sector is decreasing.

Private Sector Credit Growth(Percent change)

5

10

15

20

2005 2006 2007 2008 2009 2010


There is limited fiscal space for countercyclical spending.

Fiscal Accounts(In percent of GDP)

-7

-6

-5

-4

-3

-2

2005 2006 2007 2008 2009 2010

15

18

21

24

27

30

Overall fiscal blance (left axis)Total revenue (right axis)Total expenditure (right axis)


Financial indicators are weakening but,so far, are manageable.

Change in Stock Market Indices(Jan 1, 2008 – Apr 30, 2009)

Sovereign Bond Spreads(In basis points, Jan 1, 2008 – Apr 30, 2009)

0

500

1000

1500

2000

2500

Jan-

08

Mar

-08

Apr-0

8

Jun-

08

Aug-0

8

Oct-08

Dec-0

8

Feb-0

9

Apr-0

9

EMBIG

Pakistan

Egypt

Lebanon

30

-25

-28

-47

-51

-45

-14

-80 -70 -60 -50 -40 -30 -20 -10 0 10 20 30 40

Tunisia

Morocco

JORDAN

Lebanon

MCSI Emerging Markets

Pakistan

Egypt


Growth has fallen,but inflation has also come down.


Consumer Price Inflation(Average; annual changes in percent)

0

2

4

6

8

10


20082009

0

5

10

15

20

25

30

35


20082009


Unemployment is already high, and economic slowdown is likely to raise it further.

Jobs Needed to Maintain 2008 Unemployment Rate

(In millions)

0

0.5

1

1.5

2

EGY JOR MAR PAK TUN

0

5

10

15

EGY JOR MAR PAK TUN

Unemployment Rate(In percent)


Risks to the OutlookRisks to the Outlook

Prolonged recession in trading partners and

Reduced availability of external financing

could lead to . . .

Worse outcomes on growth and employment

Weaker corporate and bank balance sheets


Policy PrioritiesPolicy Priorities

Quickly make use of limited scope for countercyclical policy.

Protect vulnerable groups.

Press ahead with growth-enhancing reforms.

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1 Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan Masood Ahmed...

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