IMF downgrades Mena growth forecast
1 February 2024
The Washington-based IMF has revised down the expected real GDP growth figure for the Middle East and North Africa region for 2024 to 2.9%, down from the previous projection of 3.4% in its October economic outlook.
The downgraded growth forecast reflects, among other things, the deepening of the voluntary oil production cuts as part of a further Opec+ agreement in November, as well as the heightened instability in the region as a result of the war in Gaza and the Red Sea crisis.
The most recent agreement among the Opec+ members saw half a dozen countries agree to additional voluntary production cuts through to the end of Q1 2024 – in addition to the voluntary cuts announced in April 2023 and extended until the end of 2024.
The regional oil producers that agreed to these additional cuts were Saudi Arabia, Iraq, the UAE, Kuwait, Algeria and Oman, with the six countries collectively accounting for a 1.6 million barrel a day reduction in oil output, led by Riyadh, which alone cut 1 million b/d.
In the same update, the IMF revised down Saudi Arabia’s real GDP growth forecast for 2024 to 2.7%, down from a previous projection of 4.0% in its October economic outlook.
A week ago, the fund’s concluding statement to its Article IV consultation with Oman also saw it lower the growth forecast for that country to 1.4%, down from a previous forecast of 2.7% growth.
Both revisions reflect the country-level economic impact of these additional voluntary cuts, which will have an even greater impact on the fiscal side, cutting into government revenues and possibly spending.
Geopolitical impacts
The other major influence on the regional economy in the past three months has been the eruption of the war in Gaza and the Red Sea shipping crisis.
These twin events have had considerable impact on the most adjacent geographies, with the war in Gaza affecting economies across the Levant, as well as regional tourism, and the Red Sea crisis hitting trade.
In mid-December, a study commissioned by the UN Development Programme (UNDP) estimated that the economic cost of the war in Gaza on neighbouring Egypt, Jordan and Lebanon was set to exceed $10bn in 2023 alone and had the potential to push 230,000 more people into poverty.
It noted that the conflict was impacting consumption and trade and exacerbating the existing weak growth, high unemployment and fiscal pressure in the three countries.
Egypt has been acutely affected by both the impact on tourism and the fall in receipts from the passage of ships transiting through the Suez Canal – both major sources of revenue for the Egyptian government.
On 26 January, the UN Conference on Trade and Development (UNCTAD) estimated that weekly transits through the Suez Canal had fallen by 42% over the past two months, and that container ship transits specifically had plummeted by 67% as compared to one year previously.
However, the largest impact has been on liquefied natural gas (LNG) carriers, which have stopped altogether since 16 January, according to Jan Hoffmann, trade logistics chief at UNCTAD.
Cross-sector impacts
Tourism has also been severely impacted since the commencement of hostilities in October, with the significant tourism markets of Egypt and Jordan being subject to mass flight and hotel cancellations. For Lebanon, the regional economic crisis has merely compounded the already dire domestic economy crisis.
In the IMF’s January briefing, research department division chief Daniel Leigh noted that for Egypt, “despite strong tourism performance overall in 2023, there’s been a slowdown since the start of the conflict in Gaza, in Israel, with hotel bookings clearly coming down.
“Now, on top of that, there’s the escalation and the Red Sea attacks, which may impact, and are impacting, foreign exchange inflows. That’s about $700m a month, a very important source of foreign currency for Egypt.”
Leigh said the uncertainty of the situation was already impacting investment prospects, creating an even more urgent need for additional financing to enable reforms and bring inflation down to restore growth.
The IMF is currently in discussions with Cairo over the provision of additional financing to the Egyptian government in the form of an Extended Fund Facility (EFF) from the fund alongside a reform programme.
More broadly, the IMF has assessed that the shockwaves from the war in Gaza have already caused current accounts across the region to deteriorate and given rise to $30bn in additional financing needs among Arab states outside of the Gulf, with further fallout expected if the conflict drags on.
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Macro risk
Despite policy ambition, the most immediate determinant of Iraq’s fiscal room is the oil price. A $10-a-barrel drop can reduce government revenue by an estimated $7bn-$9bn annually. Such sensitivity matters because infrastructure spending is still largely funded by the public purse. Oil price swings affect project awards, payment cycles and the government’s willingness to assume up-front capex obligations.
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