Global Investment House
MENA Economy
11 May 2013

MENA's real GDP is expected to expand by 4.8% in 2012 influenced by the growth in oil-exporting countries. The real GDP of oil-exporting countries is anticipated to expand by 5.7% in 2012 as compared to 3.9% in 2011. GDP of MENA's oil-importing countries expanded by 1.9% (lowest in the last three years) in 2012, with high food and fuel prices, low tourism growth, policy uncertainties, and subdued public expenditure impairing growth. MENA's GDP growth is forecasted to moderate to 3.1% in 2013, in line with growth expectations in the region's oil-exporting countries, before recovering to 3.7% in 2014.

Fiscal surplus expected to decline to 4.7% of GDP in 2013

In 2013, fiscal surplus is expected to decline to 4.7% of GDP for the MENA region, following continued fiscal spending by oil-exporting countries, particularly GCC countries, to support various planned social expenditures under long-term development plans of the respective countries. Consequently, fiscal surplus for GCC countries is expected to moderate to 11.2% of GDP in 2013. Meanwhile, fiscal deficits for non-GCC oil-exporting countries will deteriorate further to 2.1% in 2013.

Gross public debt among MENA’s oil-exporting countries declined further and remained at low levels. Public debt–to-GDP ratio is expected to decline to 13.9% in 2012 and 10.7% in 2013 from 14.9% in 2011. Similarly, Non-GCC oil exporters are expected to reduce their public debt by almost half between 2011 and 2013. Gross public debt-to-GDP ratio is expected to decline from 17.6% of GDP in 2011 to 9.9% in 2013.

Egypt to remain in limelight amongst the non oil exporting countries of MENA

After the Arab spring in Egypt, the new Egyptian government took series of measures to contain the economic turmoil amongst them in November 2012, the Egyptian finance ministry unveiled a 10-year economic reform plan aimed at making Egypt a more democratic country. The most important components of the plan include, reducing the government’s deficit through two means: reduction in subsidies and revisions in the current tax regime. The program aims to reduce the fiscal deficit to 10.4% of the GDP during 2012–13, compared to a budget deficit of 10.9% in the previous year. The reforms also provide for decreasing the fiscal deficit to 8.5% by end of fiscal 2013–14, as well as reducing the deficit to 5.0% of GDP by end of 2016–17.

Non-hydrocarbons sector will be the cornerstone for future growth

Although the significance of oil and gas production to the overall growth of the MENA’s oil-exporting countries will not diminish, the non-oil sector has increasingly supported the overall GDP growth in the region, led by higher manufacturing activities and investments to upgrade social infrastructure. Non-oil GDP growth among MENA oil exporters is expected to increase 4.8% in 2012, while the oil sector growth would decline to 1.3% from 2.6% in 2011

External account remains sensitive to hydrocarbon exports

After more than doubling to USD407.7bn (14.0% of the GDP) in 2011, current account balance (CAB) in the MENA region was recorded at USD396.9bn (12.5% of GDP) in 2012. As the combined CAB of MENA oil-exporting countries represent more than 90% of the MENA region, higher oil exports are the primary driver for the high CAB. Total exports by MENA oil-exporting countries increased 32.5% in 2011, led by similar growth (39.2%) in exports from GCC countries. Meanwhile, imports rose 12.3% among MENA oil-exporting countries, again led by 17.8% growth in imports of GCC countries. Total exports by MENA oil-exporting countries are expected to remain high in 2012, as GCC’s exports increase 6.8% and imports rise at 8.5% in 2012.

On the other hand, MENA oil-importing countries continued to register current account deficits as result of lower exports to Europe, dislocation of goods transit through Syria, and decline in tourism receipts due to the recent political turmoil in the region. Current account deficits rose to 6.9% of the GDP among oil-importing countries in 2012 from 5.2% in 2011, led by 4.7% increase in imports, while exports declined 2.9%. CAB is expected to improve slightly in 2013, led by marginal economic recovery in Europe, which serves as a key trade partner of the region, while tourism activity picks up, albeit slowly and below the pre-unrest levels in Egypt, Jordan, Lebanon, and Tunisia. Tourism, which contributes 5% of the GDP in Egypt, was among the worst hit sectors during the civil unrest in the country.

Rising inflation with the exception of GCC countries

High oil surplus, together with region-wide public wage growth and direct subsidies to nationals to compensate for the high food and commodity prices, has fueled supply and demand-driven inflation in the MENA region. In particular, consumer prices in the non-GCC oil-exporting countries are expected to record a 19.1% increase in 2012. High inflation would persist in non-GCC oil-exporting countries in 2013, but with some improvements as fiscal and monetary tightening comes into play.

Factors such as high gross reserves and civil service wage increase have created excess liquidity in countries like Algeria (projected to record inflation of 8.5% in 2012). In Yemen, the continued funding of fiscal deficits by the central bank has led to excess monetary growth and inflation (15.0% in 2012). Meanwhile, the low credit off-take in Iraq has left consumer prices at its lowest among the non-GCC oil exporters. Libya is expected to witness a sharp fall in inflation in 2013 to 0.9% from 10.0% in 2012, as the economy sheds the cost of civil unrest and moves on to a strong growth trajectory.

Inflation in MENA oil-importing countries is projected to rise to 9.0% in 2012, as governments reduce energy subsidies and allow hikes in international food and fuel prices to be passed on to the consumers. Nevertheless, concession in monetary policy in response to a second round of price hikes is expected to reduce inflation marginally to 8.8% in 2013.

Exports and Tourism to Boost Jordanian Economy

After a lackluster 2012, with GDP growth at 2.8%, Jordan’s economy is expected to recover in the coming years. Jordan’s economy suffered from the instability in the region, which negatively affected the tourism industry. In addition, poor performance of the global economy dampened exports.

The economy is expected to improve in 2013 with a GDP growth of 3.3%, and thereafter, at an average of 4.0% till 2017. Foreign direct investments are likely to increase, especially from the Gulf States, as global economic conditions remain in jeopardy. Private consumption, although currently under stress, is expected to boost in the long term owing to a recovery in the tourism industry–the second biggest employer in Jordan. Furthermore, the rising demand for Jordanian goods from the neighboring countries, especially Iraq, is likely to increase exports, thus offsetting the decreasing demand from the US.

Released by Global Investment House.