Middle East and North Africa Regional Economic Outlook November 12, 213
Outline Global Outlook MENAP: Recent Developments, Outlook, and Risks Oil Exporters Oil Importers Key Takeaways 2 Global Outlook
Global growth remains subdued, and its underlying dynamics are changing WEO Real GDP Growth Projections (percent change from a year earlier) 212 213 214 World U.S. Euro Area Emerging markets China India 3.2 2.8 -.6 4.9 7.7 3.2 2.9 1.6 -.5 4.5 7.6 3.8 3.6 2.6.9 5.1 7.3 5.1 Source: IMF, World Economic Outlook. Global Outlook 3 8
Risk of slower-than-expected growth in emerging markets GDP Impact (First Year, Percent change relative to baseline) -.5-1 -1.5-2 BRICS World Oil Exporters Oil Importers -2.5-3 -3.5-4 2% 2% Source: IMF, World Economic Outlook; and Staff calculations. 4 Global Outlook
Financial conditions remain tighter following recent market volatility EPFR Cumulative Funds Flows¹ (Bonds and Equities, Jan 211=, in US$ billions) 6 5 4 3 2 1-1 EM Asia EM LAT EM Europe EM MENA, right scale 3 May 22 Sep 18 2 1 7 6 5 4 3 2 1 Bond Yields (Percent, Aug 2, 212 Oct 22, 213) EM (JPMorgan EMBIG) MENAP oil importers HSBC/Nasdaq Dubai GCC Conventional Chairman Bernanke's testimony to Congress Announcement by the Fed not to taper -2-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Sources: IMF, World Economic Outlook; and Bloomberg LP. 5 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Global Outlook
Food and fuel prices remain elevated Food and Fuel Price Developments 1 (Index; 25 = 1) 3 25 Food Fuel 2 15 1 5 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 Dec-12 Dec-13 Dec-14 Sources: IMF, Primary Commodity Price System; and IMF staff calculations. 1 Commodity food price index includes cereals, fruit and vegetables, and protein price indices. 6 Global Outlook
Recent developments, outlook, and risks MENAP oil exporters Iraq Algeria Libya Iran Kuwait Saudi Arabia Bahrain Qatar Oman Yemen 7 United Arab Emirates
Non-oil GDP growth steady in most countries 1 Non-oil Real GDP Growth (Annual percent change) 8 213 214 23.3 19.5 6 4 2-2 Sources: National authorities; and IMF staff calculations. 8 MENAP oil exporters
Headline growth in 213 will be lower because of a decline in oil production MENAP oil exporters: GDP and crude oil production (Percent change) 6 5 4 3 2 1-1 -2-3 -4 Real GDP (left scale) Crude oil production 211 212 213 214 Change in oil exports between 212-13 (Millions of barrels per day).5.25. -.25 -.5 May 213 Forecast Fall 213 Forecast Iran Iraq Libya Saudi Arabia Sources: National authorities; and IMF staff calculations. 9 MENAP oil exporters
Strong economic performance but challenges over the medium term Oil production and price volatility Large government spending increases Segmented labor markets Low or falling productivity Risks to growth Rising fiscal vulnerabilities Insufficient private-sector job creation for nationals 1 MENAP oil exporters
Risks to oil prices and production are significant Oil price uncertainty 1 (U.S. dollars per barrel) Ample medium-term capacity (Millions of barrels per day, 213 16) 175 2.5 15 2. 125 1 1.5 75 5 25 95% confidence interval 86% confidence interval 68% confidence interval Futures 12 13 14 15 16 Sources: IEA Medium Term Oil Market Report (213); IMF, Primary Commodity Price System; and IMF staff calculations. 1 Derived from prices of futures and options on Sep. 12, 213. 11 1..5 213 214 215 216 Change in OPEC spare capacity (cumulative change since 212) World demand growth (annual percent change) World supply capacity growth (annual percent change) MENAP oil exporters
Government budgets are increasingly vulnerable to a decline in oil prices Fiscal Breakeven Prices (U.S. dollars per barrel) 1 Fiscal breakeven price, 214 16 14 12 1 8 6 4 2 Change in WEO oil price, 2 28-14: US$4 Saudi Arabia United Arab Emirates Kuwait Algeria Bahrain Iraq Oman Qatar Iran Libya 1 2 3 4 5 6 7 Change in fiscal breakeven price, 28-14 Sources: National authorities; and IMF staff calculations. 1 Yemen fiscal breakeven, 213: US$215 per barrel. 2 Simple average of UK Brent, Dubai, and West Texas Intermediate Spot Prices. WEO oil price, 2 214: US$11.3 12 MENAP oil exporters
Fiscal and external buffers are declining Fiscal Balances (Percent of GDP) Current Account Balances (Percent of GDP) 1 8 6 4 2-2 Baseline BRICS Slowdown Scenario 2 16 12 8 GCC 214: $322 billion Non-GCC 214: $15 billion GCC 218: $216 billion Non-GCC 218: $ -6 billion -4-6 4-8 -1 212 213 214 215 216 217 218 21 212 214 216 218 Sources: National authorities; and IMF staff calculations. 13 MENAP oil exporters
Can the current economic model deliver sustainable growth? Non-oil Total Factor Productivity Growth (Percent change, 2-12) 3 2 1-1 -2-3 BHR OMN UAE KWT QAT SAU ALG Sources: National authorities; and IMF staff calculations. 14 MENAP oil exporters
A 1 million jobs deficit? 1.8 1.6 1.4 1.2 1..8.6.4.2. GCC Nationals (Millions, 213-218) 213 214 215 216 217 218 Labor force entrants (cumulative since 212) Private-sector jobs creation (cumulative since 212) 1 million 15 MENAP oil exporters
Comprehensive reforms to increase privatesector growth and employment are needed Selective capital investments (GCC); basic infrastructure (non-gcc) Access to finance for SMEs Security and business environment (non- GCC) Private sector labor market interventions (subsidies, quotas) Education and on-thejob training Limit public-sector wages and employment 16 MENAP oil exporters
Recent developments, outlook, and risks MENAP oil importers Tunisia Morocco Lebanon Syria Afghanistan Jordan Egypt Mauritania Sudan Djibouti Somalia 17 Pakistan
7 6 5 4 3 2 1 Delayed recovery, weak medium-term prospects Real GDP Growth (Percent ) 211 212 213 27 28 29 21 211 212 213 214 215 216 Sources: National authorities; and IMF staff calculations. 18 MENAP oil importers
Weak growth prevails in most countries 7 6 5 Real GDP Growth (Annual percent change) 213 214 EMDC 4 3 2 1 LBN EGY TUN AFG JOR PAK SDN DJI MAR MRT Sources: National authorities; and IMF staff calculations. 19 MENAP oil importers
2 16 12 8 4 Persistently high and rising unemployment fuels social tensions 21 213 Tunisia Egypt Jordan Morocco Pakistan Unemployment rates (Latest available date, percent) Sources: International Labor Organization; national authorities; and IMF staff calculations. MENAP oil importers 2 Youth unemployment 45 4 35 3 25 2 15 1 5 Developed economies and EU LAC Asia Jordan Egypt Sudan Tunisia Morocco Central and South Eastern Europe and CIS Sub-Saharan Africa Pakistan Lebanon Syria 4 6 8 1 12 14 16 18 2 Total unemployment
-2-4 -6-8 -1-12 -14-16 Slow growth and reform delays exacerbate fiscal vulnerabilities Fiscal balance (Percent of GDP) 2 21 213 Change in Expenditure (Percent of GDP, 21 13) 3 2 1-1 Wages Capital expenditures MENAPOI MENAP OI¹ Subsidies and transfers Other expenditures Sources: National authorities; and IMF staff calculations. 21 MENAP oil importers
14 12 1 Reserves buffers are low Gross International Reserves (Months of imports) Dec-21 Apr-213 (or latest available) Emerging markets and developing economies (Jun 213) 8 6 4 2 PAK SDN TUN EGY MAR JOR DJI AFG MRT¹ LBN Sources: National authorities; and IMF staff calculations. ¹Reserves in months of the following year's imports excluding extractive industries imports. MENAP oil importers 22
Complex political transitions impede policy formulation and implementation 213 214-15 Jordan (Parliamentary election) Lebanon (Prime Minister resigns) Egypt (Parliamentary election, delayed) Pakistan (Parliamentary election) Morocco (Coalition moving ahead) Egypt (Interim government) Tunisia (Political crisis) Mauritania (Parliamentary election) 23 Afghanistan (Presidential election) Egypt (Presidential and Parliamentary elections) Tunisia (Presidential and Parliamentary elections) Lebanon (Presidential election) Lebanon (Parliamentary election) Sudan (Presidential and Parliamentary elections) MENAP oil importers
11 Mounting social, political, and security tensions weigh on confidence Confidence indicators 1 (Index; Dec 29=1, seasonally adjusted) 1 9 8 7 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Source: PRS group. 1 Average of consumer confidence indices for Egypt, Jordan, Lebanon, Morocco, Pakistan, Sudan, Syria, and and Tunisia. MENAP oil importers 24
Spillovers from Syria intensify social and security risks Estimate of refugee flows from Syria 1 Turkey: 494K [.7] Refugees Total outside Syria: 2.1 million Internally displaced: about 5. million Cyprus Lebanon 77K [18.9] Syria Iraq: 194K [.6] Disruptions to bilateral and transit trade Declining tourism Egypt 127K [.2] Jordan: 525K [8.] Sectarian violence Sources: UN Refugee Agency, Information Sharing portal : Syria Regional Refugee Response. 1 As of September 29, 213. Figures reflect the number of refugees registered or awaiting registration. Figures in square brackets denote the share of Syrian refugees in the host country's population. 25 MENAP oil importers
Downside risks are significant and can further weaken the economy and reduce jobs Real GDP Growth, 214 (Percent) Unemployment, 214 (Millions of people) Weaker Growth -1¼% Baseline +1½ million people 1 2 3 // 15 16 17 18 Sources: National authorities, ILO, Trading Economics forecasts; and IMF staff calculations. MENAP oil importers 26
Urgent actions needed in three areas to achieve sustainable and inclusive growth ❶ Creating jobs by orienting public spending toward investment ❷ Improving fiscal sustainability and rebuilding buffers ❸ Embarking without delay on structural reforms to raise potential growth and enhance equity 27 MENAP oil importers
Shoring up growth and creating jobs Increasing productive public Reorient investment spending Increase capital, health, education Bringing spending additional external Increase financing targeted safety nets Invigorating initiatives to Cut improve generalized business climate subsidies 8 7 6 5 4 3 2 1 Real GDP (Annual percentage change) Growth needed for 8 percent unemployment rate 28 21 212 214 216 218 28 MENAP oil importers
6 5 4 3 2 1 $1 trillion opportunity from higher female labor force participation Gender Gaps in Labor Force Participation¹, ² (Percentage points, average 2-11) Sources: World Bank, World Development Indicators; and IMF staff estimates. 1 Defined as male less female labor force participation rate. ²AE: Advanced Economies; DEA: Developing and Emerging Asia; EE: Emerging Europe; LAC: Latin America and the Caribbean. 29 MENAP oil importers
Achieving fiscal sustainability Reorient spending Increase capital, health, education spending Increase targeted safety nets Cut generalized subsidies Mobilize revenues Broaden tax base Raise income tax progressivity Raise excises and taxes on high value properties 3 MENAP oil importers
Raising potential growth and making it more inclusive through structural reforms Business climate/ governance Trade integration Labor market/ education Socially inclusive growth and jobs Access to finance Social protection Financial sector soundness 31 MENAP oil importers
Takeaways Oil exporters: Oil GDP growth to resume in 214 but subject to considerable oil production and price uncertainty Saving more will strengthen fiscal resilience to oil revenue shocks and arrest the deterioration in fiscal and external positions Job creation requires structural reforms supplemented with measures to encourage private sector employment for nationals Oil importers: Complex political transitions and social and security tensions thwart economic recovery under looming fiscal and external vulnerabilities Maintaining macroeconomic stability and promoting growth prospects, jobs, and better living standards: Reorient expenditures and mobilize revenues Ignite structural reforms 32
Thank you! To download REO publication and annexes online, please visit: http://www.imf.org/external/pubs/ft/reo/213/mcd/eng/mreo113.htm 33