Economic growth in the GCC area is expected to rise to 4.7% in 2014 from 3.7% this year on the back of non-oil sector large infrastructure projects, a new report has shown.
The six Gulf Cooperation Council countries also continue to provide external financing for the rest of the Mena region in the form of official grants, soft loans, and large foreign direct investment (FDI), said QNB in a report. This is critical for a smooth economic recovery in the Mena region. Indeed, this will provide enhanced access to export markets for the region’s products and services, which will also be critical for cultivating competitiveness and jobs, the report said.
Projections from the International Monetary Fund’s latest World Economic Outlook suggest economic performance in the Middle East and North Africa (Mena) region remains mixed. On the one hand, growth in the oil importing countries of the region remains subdued as political uncertainty and lack of investment are holding back growth. On the other hand, oil exporting countries, including the GCC members, continue to grow rapidly, boosted by large infrastructure projects.
According to QNB, this dual speed development will continue over the next two years, with the GCC countries acting as the locomotive for growth in the Mena region and the main source of investment and financing.
QNB forecasts show the overall Mena economy will grow 2.1% in 2013 and 3.8% in 2014. The overall figure masks a significant difference in performance between oil exporters, including the GCC countries, and oil importers. Last year’s subdued 2.7% growth in Mena oil importers is expected to fall to 1.6% in 2013 and recover to 3.2% in 2014.
However, this will not be sufficient to begin making sizable progress into creating sufficient jobs to reduce these countries’ large unemployment rates.
Meanwhile, oil exporters’ healthy growth rates are projected to moderate this year to 3.0% as they scale back increases in oil production amidst modest global energy demand. Continued large infrastructure investment is expected to lead to a rise in economic growth to 4.5% in 2014, the QNB report said.
Economic conditions remain impaired across most Mena oil importers, with continued social unrest in Arab Spring countries, and an economic environment characterized by modest global growth, persistently high food and fuel prices, and weak domestic confidence. Eroded international reserves are unlikely to improve in the short-term, without significant gains in exports, foreign direct investment (FDI), or remittances, according to the report.
Moreover, with low fiscal buffers and depleted reserves, considerable fiscal consolidation will be needed in some cases, in order to maintain macroeconomic stability, instill confidence, preserve competitiveness, and mobilize external financing. Specifically, countries will need to implement more cutbacks in subsidies, coupled with the need to design policies that help contain the wage bill.
In addition, the Mena countries in transition continue to face political uncertainty with the challenge of delivering on the expectations for jobs and fostering economic cohesion, which is also holding back growth. In particular, the Syrian crisis has had a strong negative impact on growth in the Mashreq region, with a large size of refugees straining the fiscal resources of countries like Iraq, Jordan, Lebanon, and Turkey to a lesser extent.
For instance, the 750,000 Syrian refugees that have already entered Lebanon (nearly 19% of the population) have had a substantial impact on the already weak fiscal position of the Lebanese budget. Equally damaging has been the setbacks to the political transitions as well as the escalation of violence in Libya, Egypt and Tunisia, further deterring the much needed economic reforms and FDI.
On the other hand, Mena oil exporters continue to experience robust growth on account of the almost near restoration of Libya’s oil production along with strong expansions in the GCC countries.
Looking ahead, Mena countries will continue on their path of economic transition owing primarily to the benign GCC outlook, which QNB said will continue to act as the locomotive for regional growth. That said, caution must be given to the external environment in oil importing countries, which remains volatile with spillovers from the Syria conflict, the report added.