Deciphering the IMF's regional outlook

By Gerard Al Fil

According to the IMF, KSA will see decline to 3.6% from 6.5%, while Qatar will witness 6% real GDP growth, its first single-growth rate for a decade. "The UAE is going through a recovery in the hydrocarbon market as well as in the non-hydrocarbon market," Masoud Ahmed, the IMF Director for the Middle East and North Africa told AMEinfo.com.

"The Qatari economy, however, has built up export facilities for its hydrocarbon industries in recent years, and this investment has advanced enough so they do not need the same degree of investment as before in 2012. In addition to that the non-oil industry is on a steady track and this reflects the current state of economic activity." At the same time, Qatar's consumer price inflation is expected to pick up to 4.1% in 2012 from 2.3% in 2011.

Increase in break-even prices

But while Qatar is more focused on a domestic transformation of its economy - also in regard to the FIFA Football World Championship Doha will host in 2022 - Saudi Arabia, which generates half of the GCC's GDP, and where 70% of its total population lives, is considered the region's bellwether. So why does the IMF expect the Saudi growth rate to ease, although HH King Abdul Aziz Bin Saud, pledged an additional spending of $130bn to create education facilities, jobs and affordable homes for Saudi citizens?

"The downside risks increase, so do the break-even prices for oil exporters," Ahmed explains. Even after the European Union and the banks decided to cut Greece's sovereign debt by half, which will reduce the country's debt to GDP ratio down to 120% from 170% until 2020, hydrocarbon demand from developed countries is expected to decrease as austerity measures in the EU and the US. Key message number one of the IMF MENAP Regional Economic outlook is that the GCC will not be as immune from negative spillover effects from the Western world as it was in 2011. There is also the danger of crowding out, meaning that government investments will overlay private sector investments.

Oil importers see low growth forecasts

In addition to that, the fallout of the Arab Spring will continue to put a burden on economic activity in the region, as investments from the GCC in distressed countries like Egypt, Syria or Tunisia will be impaired.

Regarding the aforementioned oil importing countries, growth for Cairo and Damascus will remain below 2% in 2012, the IMF forecasts. This is the outlook's second key message: the growing gap between oil exporters (especially in the GCC) and oil importers. "As MENAP oil importers' economies are closely linked to Europe, these countries are likely to be adversely affected by the slowdown in European economic activity via trade, investment, and remittance channels." The IMF urges all Arab states to increase the speed in reforming laws in order to attract foreign direct investment and to bring the most in need back into the labour market and to reduce the size of the informal economy, which represents in Egypt and Syria over a third of the national economy.