2024-01-11 09:49:13
Conflict in the Middle East increases forecast uncertainty. Assuming it does not worsen, growth in the Mena region is expected to recover to 3.5% in 2024 and 2025.
According to a latest report from the World Bank, the recent conflict in the Middle East has amplified geopolitical and political uncertainty in the Middle East and North Africa (MENA) region and hampered tourism. The region was already facing multiple challenges, such as declining oil production, unsustainable inflation and limited private sector activity in oil-importing economies. Growth in the region slowed sharply in 2023, to 1.9%. In exporting countries, the oil sector has weakened significantly due to production cuts.
Growth in Gulf Cooperation Council (GCC) member countries is estimated to have fallen sharply in 2023, as falling oil production more than offset strong non-oil sector activity. In other oil-exporting countries, growth resumed in those that were exempted from the OPEC production cut agreement.
A resumption of growth in Morocco
Growth among oil importers also weakened somewhat last year, reflecting anemic private sector activity. Food inflation remained persistently high, while significant currency depreciations pushed up overall inflation.
In Egypt, growth is estimated to have slowed in the 2022-2023 financial year (July 2022 to June 2023) due to import restrictions, declines in household purchasing power and sluggishness of business activity. On the other hand, estimates show a resumption of growth in Morocco thanks to the recovery of the agricultural sector, despite the earthquake that occurred in September.
Conflict in the Middle East increases forecast uncertainty. Assuming it does not worsen, growth in the Mena region is expected to recover to 3.5% in 2024 and 2025.
The forecast was revised upwards from what was expected in June, given stronger-than-expected growth among oil exporters, supported by the rebound in activity in this sector.
In the GCC countries, growth is expected to reach 3.6% in 2024 and 3.8% in 2025. In Saudi Arabia, growth is expected to pick up again due to an increase in oil production and exports from the country, despite an extension of voluntary production cuts this year. Among other exporters, higher oil production resulting from the easing of reduction measures in early 2024 is expected to contribute to faster growth in Algeria and Iraq.
What prospects for importers?
Among oil importers, growth is expected to be 3.2% this year and 3.7% in 2025. It will increase in some economies, in particular Djibouti, Morocco and Tunisia, but the countries closest geographically of the conflict will suffer more of the repercussions.
As for Egypt, the conflict risks exacerbating inflation, curbing private sector activity and intensifying pressure on external accounts due to the decline in tourism receipts and remittances from emigrant workers. The conflict will also affect Jordan’s tourism sector.
The economic outlook for the West Bank and Gaza is very uncertain, with growth expected to decline by 6% in 2024 after a contraction of 3.7% in 2023. The massive destruction of fixed assets in Gaza will lead to a significant decline in activity economic. The ongoing conflict will also worsen the already dire economic conditions in the West Bank. If, however, the conflict subsides, reconstruction efforts should contribute to a rebound in growth to 5.4% in 2025.
The Mena region and the risks expected
The intensification of the conflict, including its spillover into neighboring economies and the influx of refugees, poses a severe threat to regional growth. Additionally, countries in the Mena region are vulnerable to natural disasters and climate change continues to increase the frequency and severity of weather events.
In oil-exporting countries, if prices fall or demand weakens, oil production could be limited and reductions are likely to persist. In importing countries, the tightening of global financial conditions could negatively impact growth prospects due to significant external financing needs.
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