The Media Line Staff
Abu Dhabi, United Arab Emirates David Rosenberg – Economic growth is returning to the Middle East, but not quite at the pace of the go-go years of soaring oil prices and massive real estate development.
An International Monetary Fund report released Sunday estimated the combined economies of the region stretching from Morocco to Pakistan would expand by 4.2 percent this year, almost double the pace of 2009. They will grow even faster in 2011, with the region clocking an expansion of 4.8 percent.
“We expect most countries in the region to grow faster in 2010 and 2011 than in 2009,” Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, said in a press release.
Although the global financial crisis took down the region’s highest flying economies, most of the Middle East weathered the worst economic contraction well. The world economies shrank 0.6 percent in 2009 as the impact of bad home loans in the U.S. reverberated through the world’s financial markets. In the Middle East, economies continued to expand, albeit at a pokier 2.3 percent pace.
The Middle East’s oil exporters will likely see economic growth pick up to 3.8 percent from 1.1 percent in 2009 as oil prices climb to an average of $76 a barrel, according to the Washington, DC-based IMF. In 2011, the rate of growth will probably accelerate to 5 percent as oil prices average $79 a barrel. Still, that leaves the oil economies growing at a slower pace than in the pre-recession years.
Oil exporters remain too vulnerable to fluctuations in the global price of petroleum, which traded at $82.10 on Friday. While not all Middle East’s big oil exporters are that heavily dependent on oil for economic output, they all rely on oil revenue for half or more of their government budgets.
For the Middle East’s oil importers, the pick-up in growth will be less dramatic. GDP growth will reach 5 percent this year, a 0.4 percentage point improvement over 2009, before slowing to 4.4 percent in 2010, the IMF report said. Egyptian GDP growth will show steady improvement this year and next, although well below the pre-recession rates when growth exceeded 6.5 percent annually. Pakistan, reeling from the impact of floods last summer, will see economic growth slow considerably from previous forecasts.
The IMF report warned that as strong as the recovery has been for the region, it is still not enough to provide jobs for the Middle East’s large and growing population of young people. It estimated that half the population is under age 25 while the average jobless rate in 2008 was 11 percent. For the region to create enough jobs, its combined economy would have to grow 6.5 percent annually over a sustained period, something it has never managed to do.
“There is now a recovery happening in the emerging markets in the region,” Ahmed said at a forum in Dubai. “But they are not growing fast enough to create the jobs they need.”
The Middle East needs 18.5 million jobs over the next decade, about 7 million more than it will create if it keeps to its previous rate of growth, the IMF said, admitting this was a “tall order.”
For all its oil wealth, the Middle East lags behind the world’s emerging economies. Since 1990, GDP has increased 55 percent for the Middle East, North Africa and Pakistan, but the emerging Asian economic powers have boosted their output by 200 percent in the same period, the IMF said. The region’s governments can accelerate economic growth by paring back on government regulation and privatizing state-owned enterprises and liberalizing labor markets. The Middle East also needs to redirect more of its trade from the slower-growth economies of Europe to burgeoning Asia, it said.
Inflation is also rearing up in some Middle East countries, the IMF warned. In Saudi Arabia it accelerated from 3.5 percent in October 2009 to 6.1 percent last August. In Iran, consumer prices were moderating until recently – showing from a 30 percent rise at the end of 2008 to 7 percent a year ago. But they have since begun rising to a 10 percent annual rate in the first quarter of 2010, the IMF report said.
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