In 2010, both oil and non-oil GDP growth are projected to pick up to around 4 percent, according to the IMF.
Oil exporters in the Middle East and North Africa have been directly hit by the global financial crisis through a sharp drop in oil prices and a drying up of capital inflows, but the blow has been softened by countercyclical government spending, according to the IMFs new regional forecast.
The IMF Middle East and Central Asia Department Director Masood Ahmed told the 11 October 11 press conference in Dubai that lower oil production resulted in a 3.5 percent drop in oil GDP, but non-oil GDP continued to grow, although moderating to 3.2 percent. In 2010, both oil and non-oil GDP growth are projected to pick up to around 4 percent, according to the IMF.
For the regions oil importers, the slowdown has been less severe, thanks to its low degree of integration with global capital markets, limited exposure of the banking system to structured financial products, and its small manufacturing base. But if the downturn for these countries has been mild, the rebound will be similarly modest, Mr Ahmed said at the briefing, which focused on the outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP).
The Regional Economic Outlook: Middle East and Central Asia divides MENAP countries into two categories: oil exporters and oil importers.
The oil exporters comprise the six countries of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – and Algeria, Iran, Iraq, Libya, Sudan, and Yemen. Together, these countries account for 65 percent of global oil reserves and 45 percent of natural gas reserves.
According to the IMF, with the large drop in oil prices – from a peak of more than $120 per barrel in the summer of 2008 to around $30 per barrel at the beginning of 2009 – and subsequent cuts in oil production, oil exporters (particularly the GCC) were hard hit.
Drawing on substantial reserves built up prior to the crisis, governments responded with expansionary fiscal policies and liquidity support to their financial sectors, which has helped contain the impact on the broader economy. These policies are also helping maintain relatively high levels of imports during the crisis, which, in turn, contributed to mitigating the global downturn. As a consequence, the current account surplus of these countries dropped by nearly $350 billion.
With higher oil prices and the anticipated reemergence of global demand, oil revenues will increase, allowing oil exporters to rebuild their international reserve positionsby more than $100 billion in 2010. This, in turn, provides the basis for maintaining public spending. With the GCCs share of world imports expected to increase from 2.7 percent in 2008 to 3.2 percent in 2009 and 2010, the regions contribution to global demand will remain solid.
While most banks in the region were not exposed to toxic assets, they have been hit by the collapse in domestic asset markets and the withdrawal of foreign funds. However, prompt and forceful policy action has contained the fallout, the IMF observed.
For the MENAP oil importers – Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, and Tunisia – the IMF said the slowdown has been less severe than in many other emerging markets, given their limited integration with global capital markets and positive spillovers from the regions oil exporters. While more limited in scope, countries have also responded with appropriate countercyclical policies, the fund said.
It continued that the global slowdowns main transmission channel has been a reduction in receipts from abroad, adding that merchandise exports and foreign direct investment have been hardest hit, and are projected to decline by 16 percent and 32 percent, respectively, in 2009, while tourism receipts and remittances are also lower, but not by as much.
The IMF further points out that oil importers in the Maghreb (Mauritania, Morocco, and Tunisia) have been highly exposed to the slowdown in the European Union, their main partner for trade and remittances. In Morocco, however, an exceptional agricultural harvest has mitigated the impact of the global economic slowdown on overall output, the fund observed.
Growth for the oil importers is projected to fall from 5.0 percent in 2008 to 3.6 percent in 2009. Looking ahead, growth is projected to remain fairly flat in 2010, mainly because of a slow recovery in advanced economy trading partners and limited scope for further countercyclical policies.
According to the IMF, for oil exporters, the crisis has revealed some shortcomings in the regions financial sector, notably weak risk management systems and overleveraged institutions. Looking forward, the IMF said continued strengthening of financial regulation and supervision – already being instituted in some countries – will be crucial.
Continued public spending on infrastructure and social development will be key to helping realise these economies potential. Governments will also need to begin designing strategies to unwind the exceptional liquidity support provided to mitigate the crisis impact, the fund has said.
It also adds that financial market development – including diversification beyond a bank-based system – will remain a medium-term priority, as will efforts to improve the business climate to support economic diversification and generate employment.
For oil importers, the fund observes that the high debt levels limit the space for fiscal stimulus in most cases, and the scope for monetary easing will be constrained by an anticipated increase in global interest rates from current historical lows. Policymakers, therefore, need to focus more on supply-side reforms to boost private sector activity and employment, and strengthen competitiveness. In countries without fixed exchange rate regimes, greater exchange rate flexibility will facilitate these goals, said the IMF.
Peak oil,What is it?
Peak oil is the simplest label for the problem of energy resource depletion, or more specifically, the peak in global oil production. Oil is a finite, non-renewable resource, one that has powered phenomenal economic and population growth over the last century and a half. The rate of oil ‘production’, meaning extraction and refining (currently about 84 million barrels/day), has grown almost every year of the last century. Once we have used up about half of the original reserves, oil production becomes ever more likely stop growing and begin a terminal decline, hence ‘peak’. The peak in oil production does not signify ‘running out of oil’, but it does mean the end of cheap oil, as we switch from a buyers’ to a sellers’ market. For economies leveraged on ever increasing quantities of cheap oil, the consequences may be dire. Without significant successful cultural reform, severe economic and social consequences seem inevitable.