Prospects and Challenges for the Global Economy and the MENA Region Ministry of Finance Cairo October 25, 2011 Andreas Bauer Division i i Chief, t International Monetary Fund
Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed now to support inclusive growth and job creation in the medium term 2 Global outlook
Global outlook has weakened 1.0 Revisions to GDP growth (Percentage point change; June 2011 WEO to September 2011 WEO) 0.5 2011 2012 0.0-0.5-1.0 U.S. Euro area MENA Dev. Asia Latin America Source: IMF, World Economic Outlook, September 2011. 3 Global outlook
Equity markets have fallen, financial stability risks have increased Equity markets (Index; 2007=100; national currency) Government bond spreads (Two-year yield spreads over German bunds; basis points) 140 450 120 100 400 350 300 Spain Italy Belgium France July 21, 2011 80 250 200 60 DJ EURO STOXX 150 40 S&P 500 100 20 Asia Latin America 0 2006 08 10 Oct-11 50 0 May 10, 2010-50 Jan-10 Jul-10 Jan-11 Jul-11 Oct-11 Source: IMF, World Economic Outlook, September 2011. 4 Global outlook
Capital flows to EM have turned negative Bond fund flows to emerging g markets (Billions of U.S. dollars, weekly flows) Equity fund flows to emerging markets (Billions of U.S. dollars, weekly flows) 2.0 1.5 QE2 (Nov. 3) EMEA LatAm QE2 (Nov. 3) Asia excl. Japan Global Total 8 6 4 1.0 2 0.5 0 0.0-2 -4-0.5 Greece crisis Ireland crisis -1.0 Jan-10 May-10 Sep-10 Jan-11 May-11 Aug-11 Greece crisis Ireland crisis Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 May-11 Aug-11-6 -8 Source: EPFR Global. 5 Global outlook
Commodity prices remain high Global commodity price developments (Price indices; 2007=100) Oil price prospects (U.S. dollars a barrel) 200 180 Wheat Food 160 Metals 140 120 100 80 60 40 20 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Source: IMF, World Economic Outlook. Sources: Bloomberg; and IMF staff calculations. Note: Derived from prices of futures options on October 17, 2011. 6 Global outlook
Downside risks have increased Downside risks: Euro area crisis Advanced economy sovereign risks Escalating global financial volatility Prospects for world GDP growth (Annual percent change) 90% confidence interval (Sep 2011 WEO) Oil supply concerns (risk of higher h oil 4 prices) 8 7 6 5 3 90% confidence interval (Apr 2011 WEO) 2 1 0-1 2008 2009 2010 2011 2012 Source: IMF, World Economic Outlook. 7 Global outlook
Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed d now to support inclusive growth and job creation in the medium term 8 MENA oil importers
MENA oil importers 9
Challenges ahead Advancing social cohesion with macroeconomic stability 10 MENA oil importers
Uncertainty weighing on activity 8 7 Real GDP Growth (Annual percent change) 2011 2012 6 5 4 3 2 1 0-1 -2 Sources: National authorities; and IMF staff calculations. 11 MENA oil importers
Growth forecasts have been revised downward 6 Real GDP growth (Annual percent change) 5 4 3 Oct 2010 REO 2 Apr 2011 REO 1 Oct 2011 REO 0 2008 2009 2010 2011 2012 Sources: National authorities; and IMF staff calculations. 12 MENA oil importers
High fuel prices and declining tourism add to external pressures Oil imports (Percent of GDP, 2010 11) Tourism Arrivals (Dec 2010 May 2011, percent change over same period of previous year) 20 2010 2011 Egypt -42 16 Tunisia -42 12 Syria -24 8 Lebanon -19 4 Jordan -12 0 Morocco 7-50 -40-30 -20-10 0 10 Sources: National authorities; World Tourism Organization (UNWTO); and IMF staff calculations. 13 MENA oil importers
External financing constrained, more costly International issuance of bonds, equity, and loans (Billions of U.S. dollars) Credit default swap spreads (Basis points, Jan 1 - Oct 14, 2011) 12 10 8 525 Bonds 475 Equity 425 Loans 375 Tunisia protests S&P downgrade of the U.S. 6 4 325 275 225 2 0 2010 2011-H1 Sources: Bloomberg; Dealogic; and Markit. 175 125 Egypt Lebanon Morocco MSCI EM 75 Jan Apr Jul Oct 14 MENA oil importers
The 2012 fiscal outlook has worsened 8 Overall fiscal deficit (Percent of GDP) Oct 2010 REO 7 Apr 2011 REO Oct 2011 REO 6 5 4 2008 2009 2010 2011 2012 Sources: National authorities; and IMF staff calculations. 15 MENA oil importers
Subsidies contributing to deteriorating fiscal positions 6 Government expenditures and fiscal balances (Percent of GDP, 2011 versus 2010) Subsidies and transfers Fiscal balance 4 2 0-2 -6% -4 EGY JOR LBN MAR SYR TUN Sources: National authorities; and IMF staff calculations. l 16 MENA oil importers
Energy subsidies mostly benefit the wealthy Share of benefits from energy subsidies (Share of total) Egypt Jordan¹ Mauritania 7% 1% 34% 13% 16% 41% 12% 3% 10% 21% 17% 65% 20% 17% 23% Bottom quintile 3rd quintile 5th quintile 2nd quintile 4th quintile Sources: National authorities; IMF staff calculations based on information in the 2008 household survey for Jordan and Mauritania, and World Bank PSIA (2005) for Egypt. ¹For Jordan, the distribution of gains accounts for both the direct and indirect effect of price subsidies. The latter refers to the impact of energy price subsidies on the price of other consumed goods and services that use energy in their production and distribution. 17 MENA oil importers
The fiscal space to respond to challenges is limited Fiscal deficit (excluding grants) (Percent of GDP, 2011) Total public debt (Percent of GDP, 2011) Jordan Lebanon Syria Egypt Egypt Jordan Lebanon Morocco Morocco Tunisia Tunisia Syria 4 6 8 10 12 14 20 40 60 80 100 120 140 Sources: National authorities; and IMF staff calculations. 18 MENA oil importers
Key points: The global outlook has worsened, and downside risks have increased For MENA oil importers, 2012 outlook is difficult, with strains on macroeconomic stability For the MENA region, reforms are needed d now to support inclusive growth and job creation in the medium term 19 MENA region
Short-term policy challenges 20 MENA region
Opportunity to develop a medium-term policy agenda for shared prosperity Fiscal policy: Establish a medium-term macroeconomic framework Better target universal subsidies Unwind tax breaks and expenditures Socially Inclusive Growth Monetary policy: Vigilance to second-round effects Expand policy toolkit in the medium term Labor Markets Access to Government Services Access to Financial Services Streamline product and labor market regulations Reform education systems to enhance skill formation Narrow gap between laws and their execution Create a level playing field Improve corporate governance and disclosure Develop financial market infrastructure 21 MENA region
For an online version of the presentation, please visit: http://www.imf.org/external/np/exr/countryfacts/egy/index.htm 22