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Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan

Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan. Middle East and Central Asia Department International Monetary Fund May 2009. MENAP Countries. Oil Exporters (12). Oil Importers (10). Outline. World Economic Outlook MENAP Economic Outlook.

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Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan

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  1. Regional Economic OutlookMiddle East, North Africa, Afghanistan, and Pakistan Middle East and Central Asia Department International Monetary Fund May 2009

  2. MENAP Countries Oil Exporters (12) Oil Importers (10)

  3. Outline • World Economic Outlook • MENAP Economic Outlook

  4. World Economic Outlook: Key Messages • Financial markets remain highly stressed. • The world economy will contract in 2009 by around 1¼ percent before recovering gradually in 2010. • Emerging economies face dramatic drops in capital inflows, demand for their exports, and commodity prices. • A third wave of the global financial crisis is hitting the world’s poorest and most vulnerable countries. • Turning around global growth depends critically on concerted policy actions to stabilize financial conditions, as well as sustained strong policy support to bolster demand.

  5. Systemic risks remain elevated despite forceful policy efforts. CDS Spreads for High-Grade Financials (Basis points) Source: Bloomberg.

  6. Equity markets and consumer confidence may be stabilizing, albeit at very low levels. Equities (1/1/2007=100; FTSE) Consumer Confidence (Jan. 2005=100)

  7. Across the globe, GDP is falling and unemployment is rising . . . Real GDP Growth (In percent; quarter on quarter annualized) Unemployment Rate 1/ (In percent) 1/ Aggregated using total labor force as weights. 2/ Excludes China, India, Indonesia, Hungary, and Pakistan.

  8. . . . but the pace of contraction in economic activity is showing tentative signs of moderating. . . Industrial Production (Annualized percent change) 1/ Merchandise Exports (Annualized percent change) 1/ 1/ Three-month moving average. 1/ Three-month moving average.

  9. . . . and falling demand and commodity prices should keep inflation in check. Global Headline Inflation (Percent change from a year earlier)

  10. 2009 2010 World -1.3 1.9 Advanced Economies -3.8 0.0 United States -2.8 0.0 Euro Area -4.2 -0.4 Japan -6.2 0.8 Emerging and Developing Economies 1.6 4.0 China 6.5 7.5 India 4.5 5.6 Russia -6.0 0.5 The global economy is set to contract in 2009 . . . Real GDP Growth (In percent)

  11. . . . and to recover only gradually in 2010. • Recovery in 2010 is predicated on: • Concerted policy actions to stabilize financial conditions. • Strong macroeconomic policy support to bolster demand. • A gradual improvement in credit conditions. • Cushioning effect from sharply lower oil and commodity prices. • Nonetheless, output gaps will continue to widen through 2010, implying rising unemployment.

  12. Risks for the world economic outlookare to the downside. • Further delays in implementing policies to stabilize financial conditions. • Deflation risks could reinforce a deeper and longer downturn. • Rising threat of corporate defaults in emerging economies. • Risks of trade and financial protectionism. • Sovereign fiscal sustainability concerns. • But, there is upside potential, hinging on bold implementation of policies.

  13. MENAP Economic Outlook ►Oil exporters►Oil importers

  14. Oil Exporters: Key Messages • Most oil exporters are maintaining high levels of capital spending. • Declining asset prices and slowing economies are putting some strain on corporate and bank balance sheets.

  15. The collapse in oil prices has caused a drop in exports and government revenue. Crude Oil Price (APSP, In U.S. dollars per barrel) Exports and Revenue

  16. Governments are continuing to spend, and imports remain high. (In billions of U.S. dollars)

  17. External and fiscal balances are deteriorating . . . (In percent of GDP)

  18. … but contributing to global demand. Imports (In percent of world imports)

  19. Despite monetary easing, credit to the private sector has declined. Interest Rates(In percent) Private Sector Credit Growth (Percent change)

  20. Asset values have fallen and . . . Real Estate Price Index (March 2008=100) Change in Stock Market Indices (Jan 01, 2008 – Apr 30, 2009, in percent)

  21. . . . some financial sector indicators have worsened. Credit Default Swap Spreads (In basis points; Aug 1, 2008 – Apr 29, 2009) Corporate Profits (Q4 2008 over Q4 2007)

  22. Growth has slowed sharply, especially in the oil sector, but inflation has come down. Growth and Inflation, 2007-10 (In percent) 1/ Excludes Sudan.

  23. Risks to the Outlook • Prolonged global recession • Further deterioration in balance sheets of financial institutions but • Economic fundamentals remain strong • Reserves remain large

  24. Policy Priorities • Maintain public expenditure subject to fiscal sustainability. • In countries with more limited fiscal space, prioritize expenditure. • Keep a close eye on the banking system. • Press ahead with structural reforms.

  25. Oil Importers: Key Messages • Growth is slowing, and financial sectors are showing some signs of vulnerability. • Protected by oil exporters’ continued spending, the impact on growth has, so far, been moderate. • But a prolonged recession in partner countries could have a significant impact on growth, and unemployment and poverty could rise substantially.

  26. In line with lower growth in major trading partners, foreign inflows are weakening. Real GDP Growth (In percent) Foreign Inflows (In billions of U.S. dollars)

  27. Effective exchange rates have appreciated. Effective Exchange Rates (Annual percent change, Jan 2008 - Jan 2009)

  28. But current account deficits are projected to decline somewhat. Current Account Balance (In percent of GDP)

  29. Credit growth to the private sector is decreasing. Private Sector Credit Growth (Percent change)

  30. There is limited fiscal space for countercyclical spending. Fiscal Accounts (In percent of GDP)

  31. Financial indicators are weakening but,so far, are manageable. Change in Stock Market Indices (Jan 1, 2008 – Apr 30, 2009) Sovereign Bond Spreads (In basis points, Jan 1, 2008 – Apr 30, 2009)

  32. Growth has fallen,but inflation has also come down. Real GDP Growth (In percent) Consumer Price Inflation (Average; annual changes in percent)

  33. Unemployment is already high, and economic slowdown is likely to raise it further. Jobs Needed to Maintain 2008 Unemployment Rate (In millions) Unemployment Rate (In percent)

  34. Risks to the Outlook • Prolonged recession in trading partners and • Reduced availability of external financing could lead to . . . • Worse outcomes on growth and employment • Weaker corporate and bank balance sheets

  35. Policy Priorities • Quickly make use of limited scope for countercyclical policy. • Protect vulnerable groups. • Press ahead with growth-enhancing reforms.

  36. Thank you

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