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MENA growth expected to improve into 2011

afrol News, 25 January - A new World Bank report, “Global Economic Prospects 2010: Crisis, Finance, and Growth,” notes that the crisis is having serious cumulative impacts on poverty, with 64 million more people expected to be living in extreme poverty by the end of 2010 than would have been the case without the crisis, according to updated analysis.

The report states that following the tortuous conditions of 2009, prospects for the Middle East and North Africa (MENA) should improve through 2011. Growth is projected to increase to 4.4 percent by that year, the same pace registered on average between 1995 and 2005.

Though domestic absorption will be a continuing source of strength, the forecast for regional recovery is premised on a revival in global oil demand, firming oil prices, and a rebound in key export markets.

Oil prices are expected to remain broadly stable over the projection period, at around $75 a barrel. A rekindling of interest in regional FDI may emerge as financial and economic conditions begin to normalize, said the report, adding that economic recovery in Europe and among the GCC countries will be supportive of a revival for the diversified economies.

The report also noted that impact of the global financial crisis for the developing economies of MENA region varied across oil exporters and importers of the region, stating that the “food-fuel” crisis of 2007-08 was a challenge for the region, the largest net exporter of oil and the largest net importer of food.

Oil exporters were less adversely affected, but food import bills widened sharply, the report said.

Hardest hit were countries in the Maghreb, as well as Jordan and Lebanon, which are large importers of both food and fuel; and the Arab Republic of Egypt which is high food-import dependence.

Over the course of 2009, net terms-of-trade movements for the developing oil exporters (Algeria, Islamic Republic of Iran, Syrian Arab Republic, and Republic of Yemen) and the Gulf Cooperation Council (GCC) were favourable, as oil prices increased and food prices declined. But high oil prices have been maintained at the expense of much reduced output.

For the more diversified economies (Egypt, Jordan, Lebanon, Morocco, and Tunisia) steep declines in external demand - notably from the dominant Euro Area - had a negative effect on merchandise exports, compounded by falling tourism volumes, lower worker remittances, and declining FDI inflows, notably those from the GCC economies.

However the report also noted that the global economic crisis ended the oil boom that saw oil prices peak at more than $150 a barrel in mid-2008, and prices have settled into a range of $65–$80 a barrel. As part of this effort, regional oil exporters scaled back production by nearly 10 percent (11 percent among high-income producers and 7.3 percent among the developing exporters of the region). The combination of much lower prices and reduced output caused oil and gas revenues for all exporters to drop from $755 billion in 2008 to $485 billion in 2009, it said.

The Euro Area is the destination for more than 70 percent of goods exports from the diversified economies of MENA region. Moreover, the Euro Area is also the host for overseas workers from the Maghreb and Mashreq and an important source of remittance flows and tourism arrivals to the developing region.

Slackening of economic activity and worsening labour conditions in Europe, as well as across the GCC economies over the course of 2009 caused the flow of worker remittances into the developing region to decline by 6.3 percent for the year - in contrast to the strong gains of 23.0 and 11.3 percent in 2007 and 2008, respectively. Among the larger recipient countries, Egypt appears to have been most adversely affected, with flows declining 9 percent, while Morocco experienced an 8 percent drop in receipts. Jordan, Lebanon, and Tunisia experienced lesser declines, within a range of 1 to 3 percent.

Tourism receipts are also said to be a key source of foreign currency equivalent to 14 percent of GDP for the diversified economies of the region. With Europe suffering increasing unemployment rates, faltering wage growth, and efforts by households to repair balance sheets badly damaged by the financial market meltdown of 2008, tourism receipts are estimated to have declined by 5 percent during 2009.

The report further notes that MENA region was less sharply impacted by the crisis than other regions, with overall GDP growth slowing to 2.9 percent in 2009. GDP is projected to grow 3.7 percent in 2010 and 4.4 percent by 2011.

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