Mena region to grow at a slower pace this year, IMF says

Fund expects region's GDP growth to slow to 3.1 per cent in 2023, from 5.3 per cent last year

Jihad Azour, director of the IMF's Middle East and Central Asia Department. Pawan Singh / The National

Growth in the Middle East and North Africa regional economy is projected to slow to 3.1 per cent this year, from 5.3 per last year, the International Monetary Fund said on Thursday.

“Despite the series of global shocks, the Mena region surprised on the upside last year ... We estimate that real GDP [gross domestic product] grew by 5.3 per cent, reflecting strong domestic demand and a rebound in oil production," Jihad Azour, director of the IMF's Middle East and Central Asia Department, said on the sidelines of the IMF-World Bank Spring Meetings.

“However, growth is projected to slow this year to 3.1 per cent due to tight policies to restore macroeconomic stability, agreed Opec+ production cuts and the fallout from the recent deterioration in global financial conditions,” he said at a media briefing.

Growth among Mena oil exporters is expected to drop from 5.7 per cent last year to 3.1 per cent in 2023, as focus shifts to non-hydrocarbon activities and they remain the main driver of growth.

Growth in the Mena region’s emerging markets is expected to fall from 5.1 per cent last year to 3.4 per cent this year, while low-income countries will continue to lack growth at 1.3 per cent this year, as they struggle with high commodity prices, macroeconomic instability and country-specific fragilities, Mr Azour said.

These projections reflect developments prior to the Opec+ oil productions cuts that were announced a few weeks ago, he added.

Opec+ members surprised the market and said they would introduce combined voluntary oil production cuts of 1.16 million barrels per day from May until the end of this year.

The voluntary production cuts by some members of the Opec+ group of crude producers should tighten the oil market further from May onwards and boost prices, according to Swiss lender UBS.

“These cuts will lower growth for the GCC region but will have a positive outcome on fiscal and external positions as higher oil prices offset the impact of lower growth,” Mr Azour said.

After surging last year, inflation in the region is forecast to remain unchanged at about 15 per cent this year before declining modestly in 2024, he said.

Despite global headwinds, the UAE and Saudi Arabia — the Arab world’s biggest economies — have witnessed good economic growth.

The UAE Central Bank expects the country's economy to grow by 4.3 per cent in 2024 and has maintained its growth forecast of 3.9 per cent growth for the current year.

The Emirates' economy is estimated to have grown by 7.6 per cent last year, the highest in 11 years, after expanding 3.9 per cent in 2021, the central bank said.

Saudi Arabia's economy grew by an annual 5.5 per cent in the fourth quarter of 2022, driven by a surge in the kingdom's oil and non-oil sectors, according to the General Authority for Statistics.

Meanwhile, regional banks were not too exposed during recent global disruptions in financial markets, Mr Azour said.

“So far, the spillovers to the region’s banks have been limited, reflecting no direct exposure to Silicon Valley Bank and limited exposure to Credit Suisse,” he said.

However, an escalation of the Ukraine war could lead to high volatility in the commodities market, fuelling additional inflationary pressures across the region and amplifying the risks of social unrest, Mr Azour said.

He also suggested some policies that regional economies should prioritise.

“Amid continued instability, policy trade-offs remain complex … striking the right balance will be critical for many countries … the monetary policy should focus on maintaining or regaining price stability,” Mr Azour said.

“Banks supervisors should ensure that banks have governance and risk management commensurate with risk profiles including capital adequacy and liquidity stress tests … structured reforms should be accelerated to bolster potential growth and enhance resilience, inclusion and build social safety nets.”

Earlier this week, the IMF lowered its global economic growth estimate for this year by 0.1 percentage points to 2.8 per cent, from what it previously projected in January, with the estimate below the 3.4 per cent expansion recorded in 2022 and the historical growth average of 3.8 per cent over the 2000-2019 period.

The global economy is projected to grow 3 per cent in 2024, a 0.1 percentage point decline from the previous estimate, according to the fund.

It said the global economy faces a “rocky” recovery as geopolitics, monetary tightening and inflation continue to weigh on growth.