Regional Economic Outlook
Middle East, North Africa, Afghanistan, and Pakistan
Middle East and Central Asia Department
International Monetary Fund
May 2009
1
MENAP Countries
Oil Exporters (12)
Oil Importers (10)
Lebanon
Tunisia
West Bank Jordan
and Gaza
Syria
Afghanistan
Iran
Iraq
Morocco
Bahrain
Algeria
Libya
Qatar
Kuwait
Pakistan
Egypt
Saudi
Arabia
U.A.E.
Mauritania
Oman
Sudan
Yemen
Djibouti
INTERNATIONAL MONETARY FUND
2
Somalia
May 2009
Outline
 World Economic Outlook
 MENAP Economic Outlook
INTERNATIONAL MONETARY FUND
3
May 2009
World 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.
INTERNATIONAL MONETARY FUND
4
May 2009
Systemic risks remain elevated despite
forceful policy efforts.
CDS Spreads for High-Grade Financials
(Basis points)
600
500
240
Lehman Bros.
bankruptcy
U.S. (left axis)
Europe (right axis)
200
Bear Stearns
collapse
400
160
300
120
200
80
100
Bleak economic
releases globally
Banks begin
issuing govt.
guaranteed
debt
0
Ja
n
Fe -07
b
Ap -07
r
Ju -07
nJu 07
Se l-07
p
N -07
ov
D -07
ec
Fe -07
b
Ap -08
r
Ju -08
nJu 08
Se l-08
p
N -08
ov
D -08
ec
Fe -08
b
Ap -09
r-0
9
0
40
Source: Bloomberg.
INTERNATIONAL MONETARY FUND
5
May 2009
Equity markets and consumer confidence may be
stabilizing, albeit at very low levels.
Equities
Consumer Confidence
(1/1/2007=100; FTSE)
(Jan. 2005=100)
120
160
Lehman
Brothers
110
140
100
120
90
100
80
80
70
20
6
-0
7
D
ec
-0
7
M
ay
-0
8
O
ct
-0
8
M
ar
-0
9
Ju
l
-0
ov
-0
5
Ja
n
Ja
n
Fe -07
bAp 07
rJu 07
n0
Ju 7
l
Se -07
p
N -07
ov
D -07
ec
Fe -07
bAp 08
rJu 08
n0
Ju 8
l
Se -08
pN 08
ov
D -08
ec
Fe -08
bAp 09
r-0
9
INTERNATIONAL MONETARY FUND
5
Ap
r-0
6
Se
p06
Fe
b07
0
30
N
40
U.S.
Japan
Euro area
U.K.
40
-0
5
50
60
U.S.
Japan
Euro area
U.K.
Ju
n
60
May 2009
Across the globe, GDP is falling and
unemployment is rising . . .
Real GDP Growth
Unemployment Rate 1/
(In percent; quarter on quarter annualized)
(In percent)
10.5
12
9.5
8
World
Emerging markets 2/
Industrial countries
8.5
4
7.5
0
6.5
-4
-0
Ju 4
n0
N 4
ov
-0
4
Ap
r-0
Se 5
p0
Fe 5
b06
Ju
l-0
D 6
ec
-0
M 6
ay
-0
7
O
ct
-0
M 7
ar
-0
Au 8
g0
Ja 8
n09
8
Ja
n
D
ec
-0
7
-0
8
Ju
n
D
ec
-0
-0
7
Ju
n
6
4.5
D
ec
-0
5
-0
6
Ju
n
D
ec
-0
-0
5
Ju
n
4
D
ec
-0
-0
4
-8
Ju
n
5.5
World
Emerging markets
Industrial countries
1/ Aggregated using total labor force as weights.
2/ Excludes China, India, Indonesia, Hungary, and Pakistan.
INTERNATIONAL MONETARY FUND
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May 2009
. . . but the pace of contraction in economic activity is
showing tentative signs of moderating. . .
Industrial Production
Merchandise Exports
(Annualized percent change) 1/
(Annualized percent change) 1/
10
60
60
5
55
40
0
50
20
-5
45
0
-10
40
-20
35
-40
-15
Global IP (left axis)
-20
Global manufacturing PMI (sa,
50+=expansion; right axis)
25
-80
World
Emerging markets
Advanced economies
Ja
nJu 00
l
Ja -00
nJu 01
l
Ja -01
nJu 02
l
Ja -02
nJu 03
l
Ja -03
nJu 04
l
Ja -04
nJu 05
l
Ja -05
nJu 06
l
Ja -06
nJu 07
l
Ja -07
nJu 08
l
Ja -08
n09
-0
Se 0
p01
Ju
l-0
M 2
ay
-0
M 3
ar
-0
4
Ja
n0
N 5
ov
-0
Se 5
p06
Ju
l-0
M 7
ay
-0
M 8
ar
-0
9
-60
ov
N
Ja
n
-0
0
-25
30
1/ Three-month moving average.
1/ Three-month moving average.
INTERNATIONAL MONETARY FUND
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May 2009
. . . and falling demand and commodity prices should
keep inflation in check.
Global Headline Inflation
(Percent change from a year earlier)
10
World
Emerging markets
Industrial countries
8
6
4
2
0
9
0
-1
ct
O
Ju
l-0
9
8
r-0
nJa
ct
O
INTERNATIONAL MONETARY FUND
Ap
07
5
-0
4
l-0
Ju
r-0
Ap
Ja
n-
02
3
-2
May 2009
The global economy is set to contract in 2009 . . .
Real GDP Growth
(In percent)
2009
2010
World
-1.3
1.9
Advanced Economies
United States
Euro Area
Japan
-3.8
-2.8
-4.2
-6.2
0.0
0.0
-0.4
0.8
Emerging and Developing Economies
China
India
Russia
1.6
6.5
4.5
-6.0
4.0
7.5
5.6
0.5
INTERNATIONAL MONETARY FUND
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May 2009
. . . 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.
INTERNATIONAL MONETARY FUND
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May 2009
Risks for the world economic outlook
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.
INTERNATIONAL MONETARY FUND
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May 2009
MENAP Economic Outlook
►Oil exporters
►Oil importers
INTERNATIONAL MONETARY FUND
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May 2009
Oil Exporters: Key Messages
 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.
INTERNATIONAL MONETARY FUND
14
May 2009
The collapse in oil prices has caused a drop in
exports and government revenue.
Crude Oil Price
Exports and Revenue
(APSP, In U.S. dollars per barrel)
140
1,200
44
1,000
40
800
36
600
32
120
100
80
60
40
Exports (In billions of U.S. dollars, left axis)
20
Revenue (In percent of GDP, right axis)
400
2005
0
2005
2006
2007
2008
2009
2010
INTERNATIONAL MONETARY FUND
15
2006
2007
2008
2009
28
2010
May 2009
Governments are continuing to spend,
and imports remain high.
(In billions of U.S. dollars)
900
Imports
Government expenditure
700
500
300
2005
2006
2007
2008
INTERNATIONAL MONETARY FUND
16
2009
2010
May 2009
External and fiscal balances are deteriorating . . .
(In percent of GDP)
24
18
12
6
0
Current account balance
Overall fiscal balance
-6
2005
2006
2007
2008
INTERNATIONAL MONETARY FUND
17
2009
2010
May 2009
… but contributing to global demand.
Imports
(In percent of world imports)
3.5
3.0
GCC
Non-GCC
2.5
2.0
1.5
1.0
0.5
0.0
2005
2006
2007
2008
INTERNATIONAL MONETARY FUND
18
2009
2010
May 2009
Despite monetary easing, credit to the private
sector has declined.
Interest Rates
Private Sector Credit Growth
(In percent)
(Percent change)
6
40
5
35
MEOE
GCC
30
4
25
3
20
BHR
KWT
QAT
SAU
UAE
2
1
0
2007
15
10
2008
5
2005
2009
INTERNATIONAL MONETARY FUND
19
2006
2007
2008
2009
2010
May 2009
Asset values have fallen and . . .
Real Estate Price Index
Change in Stock Market Indices
(March 2008=100)
(Jan 01, 2008 – Apr 30, 2009, in percent)
130
120
Kuwait
-40
BHR
KWT
OMN
QAT
SAU
U.A.E.
S&P 500
-41
-42
Qatar
-42
Bahrain
110
-44
Oman
-44
Abu Dhabi
100
Saudi Arabia
-48
Dubai
-73
90
Mar-08
Jun-08
Sep-08
Dec-08
-80
INTERNATIONAL MONETARY FUND
20
-70
-60
-50
-40
-30
-20
-10
0
May 2009
. . . some financial sector indicators have worsened.
Credit Default Swap Spreads
Corporate Profits
(In basis points; Aug 1, 2008 – Apr 29, 2009)
(Q4 2008 over Q4 2007)
0
700
600
500
BHR
QAT
SAU
UAE
-50
-100
400
300
-150
200
-200
100
0
Aug-08
-250
Sep-08
Nov-08
Dec-08
Feb-09
KWT
Apr-09
INTERNATIONAL MONETARY FUND
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UAE
QAT
BHR
OMN
May 2009
Growth has slowed sharply, especially in the oil
sector, but inflation has come down.
Growth and Inflation, 2007-10
(In percent)
GCC
Proj. Proj.
2007 2008 2009 2010
Other
Proj. Proj.
2007 2008 2009 2010
Total
Proj. Proj.
2007 2008 2009 2010
Real GDP growth
Oil1
Non-oil1
5.1
1.0
6.9
6.4
4.5
7.2
1.3
-4.3
3.2
4.2
3.5
3.9
6.8
1.4
7.6
4.5
0.6
5.3
3.1
-2.9
4.2
3.4
-1.0
3.8
6.0
1.2
7.3
5.4
2.4
6.1
2.3
-3.5
3.7
3.8
1.1
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
1/ Excludes Sudan.
INTERNATIONAL MONETARY FUND
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May 2009
Risks to the Outlook
 Prolonged global recession
 Further deterioration in balance sheets
of financial institutions
but
 Economic fundamentals remain strong
 Reserves remain large
INTERNATIONAL MONETARY FUND
23
May 2009
Policy 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.
INTERNATIONAL MONETARY FUND
24
May 2009
Oil Importers: Key Messages
 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.
INTERNATIONAL MONETARY FUND
25
May 2009
In line with lower growth in major trading partners,
foreign inflows are weakening.
Real GDP Growth
Foreign Inflows
(In percent)
8
6
(In billions of U.S. dollars)
200
2008
2009
2008
2009
180
160
140
4
120
2
100
80
0
60
-2
40
20
-4
0
-6
Exports
U.S.
Euro Area
GCC
INTERNATIONAL MONETARY FUND
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Remittances
Tourism
Foreign direct
investment
May 2009
Effective exchange rates have appreciated.
Effective Exchange Rates
(Annual percent change, Jan 2008 - Jan 2009)
30
20
10
0
-10
Nominal
Real
-20
DJI
EGY JOR LBN MRT MAR PAK SYR TUN
INTERNATIONAL MONETARY FUND
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May 2009
But current account deficits are projected to
decline somewhat.
Current Account Balance
(In percent of GDP)
0
-10
-20
-30
2008
2009
-40
AFG
DJI
EGY JOR LBN MRT MAR PAK SYR TUN
INTERNATIONAL MONETARY FUND
28
May 2009
Credit growth to the private sector is decreasing.
Private Sector Credit Growth
(Percent change)
20
15
10
5
2005
2006
2007
2008
INTERNATIONAL MONETARY FUND
29
2009
2010
May 2009
There is limited fiscal space for
countercyclical spending.
Fiscal Accounts
(In percent of GDP)
-2
30
-3
27
-4
24
-5
21
-6
-7
2005
18
Overall fiscal blance (left axis)
Total revenue (right axis)
Total expenditure (right axis)
2006
2007
2008
INTERNATIONAL MONETARY FUND
30
2009
15
2010
May 2009
Financial indicators are weakening but,
so far, are manageable.
Change in Stock Market Indices
Sovereign Bond Spreads
(Jan 1, 2008 – Apr 30, 2009)
(In basis points, Jan 1, 2008 – Apr 30, 2009)
2500
Pakistan
2000
MCSI Emerging Markets
1500
-47
-45
EMBIG
Pakistan
Egypt
Lebanon
Egypt
-51
Lebanon
-28
1000
Jordan
-25
500
Morocco
INTERNATIONAL MONETARY FUND
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9
-0
Ap
r
Fe
b-
09
8
D
ec
-0
8
-0
8
-0
8
8
-0
ct
-0
40
O
30
Au
g
20
Ju
n
10
Ap
r
-0
8
0
Ja
n
-80 -70 -60 -50 -40 -30 -20 -10
-0
8
0
30
ar
Tunisia
M
-14
May 2009
Growth has fallen,
but inflation has also come down.
Real GDP Growth
Consumer Price Inflation
(In percent)
(Average; annual changes in percent)
10
35
2008
2009
30
2008
2009
8
25
6
20
4
15
10
2
5
0
0
AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN
AFG DJI EGY JOR LBN MRT MAR PAK SYR TUN
INTERNATIONAL MONETARY FUND
32
May 2009
Unemployment is already high, and economic
slowdown is likely to raise it further.
Jobs Needed to Maintain 2008
Unemployment Rate
Unemployment Rate
(In percent)
(In millions)
15
2
1.5
10
1
5
0.5
0
0
EGY
JOR
MAR
PAK
TUN
EGY
INTERNATIONAL MONETARY FUND
33
JOR
MAR
PAK
TUN
May 2009
Risks 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
INTERNATIONAL MONETARY FUND
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May 2009
Policy Priorities
 Quickly make use of limited scope for
countercyclical policy.
 Protect vulnerable groups.
 Press ahead with growth-enhancing reforms.
INTERNATIONAL MONETARY FUND
35
May 2009
Thank you
36