After sharp increases in the first half of this year because of strong crude prices, the oil revenues, investments and current account surpluses in the region are expected to sharply slowdown in 2009 and this will affect real growth in most countries, it said in its global economic outlook report for 2009.
It expected real growth in the six-nation Gulf Co-operation Council (GCC) and other countries in the Middle East and North Africa (Mena) to plunge from 5.8 per cent in 2008 to less than four per cent in 2009 before it starts to pick-up in the following years after the global economy begins its recovery.
But the report said he impact of the financial crisis on the region has remained less pronounced compared to the other economies, adding that most Mena banks were not major holders of securities in the United States.
"Uncertainty surrounding the medium-term path for oil prices is probably the element of greatest risk confronting the region. Where the global price of oil settles, grounded in the fundamentals as well as by pressures exerted by Opec will determine the potential growth path for the oil-dominant economies of the region.
The 'base case' view posits world crude oil prices remaining within a $65 to $75/bbl range through 2010," the 200-page report said.
"But substantial downsides to this price forecast can be envisioned should the slowdown in developing-country GDP growth fall much below the 4.5 per cent posited for 2009. Although a repeat of 1985-1986, when oil prices tumbled to $10/bbl is unlikely, prices below $50/bbl could be in the cards, with attendant adjustments required by the region's exporters," it said.
Figures by the US-based institution showed strong crude prices boosted the revenues of key Mena oil exporters by nearly 50 per cent to $200 billion (Dh734bn) in the first half of 2008. But it added the loss of more than $100 in oil prices in the second half is expected to have strong adverse effects on the region's finances.
"Regional oil exporters are now experiencing a substantial downshift in hydrocarbon receipts, terms of trade, and current account surplus positions that will manifest more clearly in 2009," it said.
"The oil exporters current account surplus increased from 17.2 per cent of gross domestic product in 2007 only moderately to 18.7 per cent in 2008, but global economic recession in 2009 will pressure oil prices lower and yield a sizable additional fall off in world oil demand."
It projected the group's current surplus position to drop steeply to eight per cent of GDP during 2009 and to 5.4 per cent by 2010. Real growth will be affected as revenue declines are likely to result in downsizing of ambitious investment projects or postponement of planned programmes, it said. At the same time, Opec's attempts to set limits on the decline in oil prices by constraining oil production will depress the oil sector in many economies, with ripple effects to the non-oil economy and the private sector.
"To date, the direct effects of the financial crisis experienced by most developing economies in the region have been relatively mild. Banks and investment companies in the Middle East and North Africa were not large holders of sub-prime mortgage-backed securities, or 'toxic assets," the report said.
But its figures showed the global crisis has had its toll on capital flows into the region, adding they are expected to decline further in the next period.
Bond issuance dropped by almost two-thirds from around $4.6bn to $1.5bn between January and August 2007 and the like period of 2008. Equity issuance also declined from $2.1bn to $750 million or 65 per cent.
"The downturn and financial crisis will exact a toll on growth in the Middle East and North Africa, but one that will be less dramatic than, for example, in Europe and Central Asia or South Asia, where country exposure and fragility of initial conditions are considerably more pronounced," it said.
"As a result, the region's GDP is anticipated to slow from 5.8 per cent in 2008 to 3.9 per cent in 2009. Recovery in 2010, predicated upon a resolution of the financial crisis in high income countries and a moderate revival of OECD growth, would see GDP pick-up to 5.2 per cent, led by a return to 5.7 per cent growth among the diversified economies."
According to the report, a very gradual build-up in global oil demand is likely to restrain GDP gains among the oil-exporting countries to five per cent in 2010. Mainly reflecting cuts in oil production, export volumes are projected to decline by around 2.1 per cent in 2009, while the regional current account surplus falls to six per cent of GDP, from 13.5 per cent in 2008, it showed.
"Recovery for the region in 2010 hinges on a pick-up in exports and a moderate upturn in investment, but primarily on a 1.8 percentage point pick-up in household outlays to a growth of six per cent, as the earlier run-up in commodity prices and consumer price inflation moderates, giving way to gradual stabilisation and to a pick-up in consumer purchasing power," it said.
"The region's current account position should continue to narrow to some four per cent of GDP, providing a new set of 'initial conditions' from which developments into the next decade are likely to spring."
By Nadim Kawach Emirates Business 24/7 2008
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