Middle East and North African economies have proved more resilient than was expected to the “Arab spring” of political turbulence, World Bank officials said in Washington this week.
But the region now faces a new threat, from the global economic slowdown – and this will be especially acute in the Mediterranean economies that are linked into the EU, World Bank regional chief economist Caroline Freund said.
Massive government spending, especially in oil-producing states, and an unexpected upturn in industrial output in post-revolution Egypt and Tunisia, all improved economic indicators for the MENA region.
As a result, the Bank revised its 2011 forecast for MENA-wide growth to 4.1% – 0.5 percentage points up on its last forecast, published in May – although this is balanced by a small reduction in the 2012 growth projection, to 3.8%, as the global downturn bites.
The Bank forecasts Egypt’s economy to grow by 3.5% next year – above many independent forecasts, which see political turbulence continuing into 2012. “We’re being quite optimistic about resolving [Egypt’s] political and economic uncertainty,” Freund said.
The spectre of recession is worrying for MENA economies, World Bank regional lead economist Elena Ianchovichina said, “because of the interplay between external risks and internal weaknesses”.
But currently, the impact of business disruptions as the Ben Ali and Mubarak regimes fell was not as protracted as expected, Freund said. Positive indicators included a faster-than-expected industrial upturn in Egypt, the impact of Iran’s surprisingly successful fuel subsidy cuts and the projection of massive social and public investment spending by governments across the region.
Analysts were surprised by the Bank’s assertion that “industrial production in Egypt and Tunisia returned to pre-Arab Spring levels” in recent months. “I don’t see where that upturn has come from, factories are still not working and people still have doubts about the political future,” one Egyptian commentator told Emerging Markets.
Much depends on how the political transition goes. According to the Bank, the upturn in industrial output suggested that “these countries might follow the standard path of political transition,” by which – as in the East European case – “growth returns quickly following the smooth transition to democracy”.
Private-sector growth continues to disappoint, especially in oil-exporting nations with “weak governance and weak rule of law, which show few signs that public investment stimulates private investment”, Ianchovichina said.
Recent stimulus policies by Gulf oil producers showed the increase in jobs outpacing the rate of economic growth – a goal of government planners seeking to mitigate Arab Spring pressures. “But there is a job quality problem,” Ianchovichina said, with public sector jobs created for their own sake, rather than to make a productive contribution to the economy.
But Ianchovichina also told Emerging Markets that the prevalence of migrant workers in low-paid jobs in Saudi Arabia and other Gulf states “benefited South Asian countries, which received increased remittances”, rather than meeting the demands for jobs of Gulf nationals.