1 Regional Economic Outlook Middle East and Central Asia Department International Monetary Fund...

1

Regional Economic OutlookRegional Economic Outlook

Middle East and Central Asia DepartmentMiddle East and Central Asia Department

International Monetary FundInternational Monetary FundOctober 2009

2INTERNATIONAL MONETARY FUND

October 2009

MENAP Oil Exporters

MENAP Oil Importers


October 2009

OutlineOutline

World Economic Outlook

MENAP Economic Outlook


October 2009

World Economic Outlook: Key Messages

The global economy is beginning to grow again, but recovery is likely to be sluggish. The slow recovery calls for sustained policy support until the expansion is firmly entrenched.

Financial market conditions continue to improve but remain tight, with the global financial system remaining far from normal.

Expansionary monetary and fiscal policy will continue to underpin the global recovery, but to safeguard price and financial stability and the soundness of public finances, credible exit strategies will be needed.

Two key factors for the medium-term: private demand replacing public demand; and demand in external surplus economies rising to make up for shrinking demand in external deficit economies.


October 2009

Exports and manufacturing helped by a turn in the inventory cycle

Industrial Production(Percent change; 3mma; annualized)

-40

-30

-20

-10

0

10

20

Jan-07 Jan-08 Jan-09

Advanced

Emerging

World

Jul-09Jan-07 Jan-08 Jan-09-80

-60

-40

-20

0

20

40

60

Advanced

World

Emerging

Merchandise Exports(Percent change; 3mma; annualized)

Jul-09


October 2009

Consumer confidence slowly recovering, but unemployment still rising

Consumer Confidence(January 2005=100)

0

20

40

60

80

100

120

140

160

180

200

05 06 07 08 09

U.S. (Conf. Board)

Japan (Econ. Soc. Res. Inst.)

U.K. (Building Society)

Germany (Eur. Comm.)

Aug. 09 05 06 07 08 095.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

Advanced

World

Emerging

Unemployment(Percent; weighted by labor force)

Jul. 09


October 2009

0

200

400

600

800

1000

1200

1400

1600

1800

BB

AAA

-100

0

100

200

300

400

500

U.S. dollar

Yen

Euro

30

40

50

60

70

80

90

100

110

120

130

DJ Euro Stoxx

Wilshire 5000

Topix

Corporate Spreads(Basis points; averages of Europe and United States)

Interbank Spreads(Basis points)

Policy has taken risk of another Great Depression offthe table, but financial conditions remain tight

Equity Markets(March 2000 = 100; national currency)

Sep.09

080604022000 Sep.09

080604022000Sep.090806042000 02


October 2009

Expansionary monetary policy has been key,but will not forestall a credit crunch

Credit Growth in Private Nonfinancial Sectors

(q/q changes; billions of local currency)

-500

0

500

1000

1500

2000

2500

-50

0

50

100

150

200

250

United States (RHS)

Euro area (LHS)

042000 09:Q2

0602 08

-40

-20

0

20

40

60

80

100 -15

-10

-5

0

5

10

15

20

United States (LHS)Euro Area (LHS)Japan (inverted; RHS)

Bank Lending Conditions

2000 02 0409:Q306 08


October 2009

-10

-8

-6

-4

-2

0

2Advanced

Emerging and developing

World

0

20

40

60

80

100

120Advanced


World

Fiscal policy too has played a major role,but fiscal support will diminish

Fiscal Balance(Percent of GDP)

901970 80 2000 10 901970 80 2000 10

Public Debt(Percent of GDP)

14 14


October 2009

Rebalancing will be a drawn-out process,implying slow global growth

-3

-2

-1

0

1

2

3

4

U.S. Oil exporters OCADC CHN+EMA ROW

Global Imbalances1

(Percent of world GDP)

1 OCADC: Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Ireland, Latvia, Lithuania, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Turkey, and United Kingdom.

Discrepancy

1412100806040220001996 98


October 2009

Global growth is expected to pick up in 2010,but the recovery will be sluggish

-6

-4

-2

0

2

4

6

8

10

12

World

Advanced


Real GDP Growth1

(Percent change from a year earlier)

-4

-2

0

2

4

6

2006 07 08 09 10

90% Confidence interval



Prospects for World GDP Growth(Percent change)

1 Quarterly data through 2010 and annual data afterwards.

1412100806042000 02


October 2009

Key risks, mainly on the downside

• Premature withdrawal of public support, because recovery seemingly self-sustaining—public’s appetite for fiscal support seems low.

• New financial disaster, geopolitical issues/oil price surge, swine flue: economy’s capacity to absorb new shocks is very low.

• Fiscal credibility loss or questions about continued independence of central banks.

• Upside: we may underestimate effects of reduced uncertainty/greater confidence.


October 2009

MENAP

►Oil Exporters

►Oil Importers

MCD Economic OutlookMCD Economic Outlook


October 2009

Oil sector was hit hard during the crisis.

Authorities responded quickly and decisively.

Early signs of recovery, and future prospects are brightening.

Financial sector vulnerabilities need addressing.

Oil Exporters: Key MessagesOil Exporters: Key Messages


October 2009

Global crisis strikes the oil sector

Real GDP Growth(Annual change; percent)

-4

-2

0

2

4

6

8

2005 2006 2007 2008 2009proj.

2010proj.

World

Advanced economies

MENAP oil exporters oil GDP


October 2009

In response, countercyclical policies were pursued, dampening the downturn in the non-oil sector

Change in the Non-Oil Primary Fiscal Deficit, 2009

(Percent of non-oil GDP)

Real GDP Growth

(Annual change; percent)

0

2

4

6

8

10

SAU UAE

Fiscal impulseAutomatic stabilizersChange in non-oil primary deficit

-4

-2

0

2

4

6

8

10

2005 2006 2007 2008 2009proj.

2010proj.

Real GDPOil GDPNon-oil GDP


October 2009

As oil prices fell and government spending rose,current account surpluses fell sharply

Current Account Balance(Billions of U.S. Dollars)

-50

0

50

100

150

200

250

300

2007 2008 2009proj.

GCC

Other


October 2009

Liquidity and funding problems also hurt the banking sector, hampering its ability to lend

Growth in Credit to the Private Sector (Annualized percent)

-10

0

10

20

30

40

50

60

DZA BHR KWT QAT SAU SDN YMN

Dec. 2004–Jun 2008June 2008–latest


October 2009

Authorities also responded quickly to stabilizethe financial sector

Central Bank Net Credit to the Banking System(Change as a percentage of base money)

0

2

4

6

8

10

12

BHR KWT SAU SDN


October 2009

Local stock markets are recovering…

Percentage Change in Stock Market Indices

Jan 1, 2008 – Mar 3, 2009 Mar 3, 2009 – Sept 21, 2009

-43

-52

-60

-75

-56

-49

-49

-48

-90 -80 -70 -60 -50 -40 -30 -20 -10 0

Bahrain

Abu Dhabi

Oman

Kuwait

S&P 500

Qatar

Saudi Arabia

Dubai

29

22

53

72

38

43

-2

39

-20 0 20 40 60 80

Bahrain

Abu Dhabi

Oman

Kuwait

S&P 500

Qatar

Saudi Arabia

Dubai


October 2009

External financing conditions are improving

CDS Spreads(Basis points)

0

100

200

300

400

500

600

700

800

900

1000

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9A

ug-0

9S

ep-0

9

BahrainOmanQatarSaudi ArabiaAbu DhabiDubai


October 2009

Despite a boost to domestic demand, no signs of inflationary pressures so far

Consumer Price Index(Percent change; year-on-year)

0

5

10

15

20

25

30

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

DZAIRNKWTLBYOMNSAUSDNYMN


October 2009

Looking forward, external and fiscal balances Looking forward, external and fiscal balances should improve: scope for continued spendingshould improve: scope for continued spending

External Current Account and Fiscal Balances(Percent of GDP)

GCC Countries Non-GCC Countries

0

5

10

15

20

25

30

2007 2008 2009proj.

2010proj.

Current account balance

Government fiscal balance

-5

0

5

10

15

20

2007 2008 2009proj.

2010proj.

Current account balance

Government fiscal balance


October 2009

Policy PrioritiesPolicy Priorities

Maintain public spending in countries with fiscal space

Orderly workout of financial/corporate balance sheet effects of asset price falls

Promote broad-based financial development


October 2009

Impact of global crisis has been limited, with growth slowing modestly to 3.6 percent in 2009.

Low integration in international financial markets and manufacturing have contained the fallout. Proactive policy responses and positive spillovers from regional oil exporters have helped.

Limited fiscal space, currency appreciation, and sluggish external receipts imply recovery will be muted.

As the rebound takes hold, policy focus will need to shift towards private sector development.

Oil Importers: Key MessagesOil Importers: Key Messages


October 2009

MENAP Oil Importers: External Receipts(Billions of U.S. dollars)

Lower external receipts,but even greater drop in imports

MENAP Oil Importers: Saving and Investment Balance

(Percent of GDP)

Note: Excludes Afghanistan and Djibouti. Tourism receipts also excludes Pakistan.

0

20

40

60

80

100

120

Export ofgoods

Tourismreceipts

Remittances FDI

20082009 proj.2010 proj.

17

19

21

23

25

27

2008 2009proj.

2010proj.

-10

-8

-6

-4

-2

0Domestic savings (left axis)Gross national investment (left axis)Current account balance (right axis)


October 2009

Economic indicators are now picking up

Merchandise Exports(Annualized percent change of 3-month moving

average over previous 3-month moving average)

Stock Market Performance (Index, January 1, 2008 = 100)

-75

-50

-25

0

25

50

75

100

125

150

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09

EGYPAKMARMENAP oil importersWorld

20

40

60

80

100

120

140

160

1-Jan-08 3-Mar-09 21-Sep-09

EGYJORLBNMARPAKTUNMSCI emerging markets


October 2009

Growth improvement will remain muted

Real GDP Growth(Annual percent change)

-2

0

2

4

6

8

2005–07average

2008 2009proj.

2010proj.

MENAP oil importersEmerging and developing economiesWorld


October 2009

Limited reliance on international capital flows...

Emerging Market Bond Issuance(Billions of U.S. dollars)

Cross-Border Loans(Billions of U.S. dollars)

0

20

40

60

80

2004

:Q1

2004

:Q3

2005

:Q1

2005

:Q3

2006

:Q1

2006

:Q3

2007

:Q1

2007

:Q3

2008

:Q1

2008

:Q3

2009

:Q1

0

5

10

15

20Emerging markets (left axis)Lebanon (right axis)Other MENAP oil importers (right axis)

0

1

2

3

4

2004

:Q1

2004

:Q3

2005

:Q1

2005

:Q3

2006

:Q1

2006

:Q3

2007

:Q1

2007

:Q3

2008

:Q1

2008

:Q3

2009

:Q1

EGYPAKTUNOther


October 2009

... contained the disruption of local credit markets

MENAP Oil Importers: Private Credit Growth

(Annual percentage change)Sovereign Bond Spreads

(Basis points)

0

500

1000

1500

2000

2500

1/1/

2008

2/17

/200

8

4/4/

2008

5/21

/200

8

7/7/

2008

8/23

/200

8

10/9

/200

8

11/2

5/20

08

1/11

/200

9

2/27

/200

9

4/15

/200

9

6/1/

2009

7/18

/200

9

9/3/

2009

EGYLBNMARPAKTUNEMBIG

5

10

15

20

25

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-0

8

Nov-0

8

Jan-

09

Mar

-09

May

-09


October 2009

Policy responses constrained by limited fiscal space

Change in Non-oil Primary Fiscal Deficit, 2010

(Percent of non-oil GDP)

Real T-Bill Rates and Total Public Debt/GDP, 2009

(Percent)

Note: Excludes countries where fiscal years differ from calendar years.

0

40

80

120

160

-5 0 5 10

Real T-Bill Rates

To

tal P

ub

lic D

ebt/

GD

P

Egypt

Morocco

Jordan

Mauritania

Lebanon

Pakistan Tunisia

Less fiscal space

-3

-2

-1

0

1

JOR LBN MAR SYR TUN

Automatic stabilizer

Fiscal impulse

Change in primary deficit


October 2009

Inflation has receded, but real effective exchange rates have appreciated

Effective Exchange Rates(Percent change, year to July 2009)

MENAP Oil Importers: Consumer Price Inflation

(Annual percentage change)

7

9

11

13

15

17

19

21

Jan-

08

Feb-0

8

Mar

-08

Apr-0

8

May

-08

Jun-

08

Jul-0

8

Aug-0

8

Sep-0

8

Oct-08

Nov-0

8

Dec-0

8

Jan-

09

Feb-0

9

Mar

-09

Apr-0

9

May

-09

Jun-

09 -10

-5

0

5

10

15

DJI EGY JOR LBN MRT MAR PAK SYR TUN

Nominal Real


October 2009

With tight budgets, and exports under pressure, growth hinges on private consumption

MENAP Oil Importers: Contribution to Real GDP Growth(Percent)

Note: Excludes Afghanistan and Jordan.

-4

-2

0

2

4

6

8

10

2008 2009proj.

2010proj.

Net exportsInvestmentConsumptionReal GDP Growth


October 2009

Banks are generally well capitalized, but NPLs remain high in some cases

Capital Adequacy Ratio(Percent)

Nonperforming Ratio to Total Loans(Percent)

0

5

10

15

20

25

30

35

DJI EGY JOR LBN MRT MAR PAK TUN

2007

Latest

0

5

10

15

20

AFG DJI EGY JOR LBN MAR PAK TUN

2007

Latest


October 2009

Policy PrioritiesPolicy Priorities

As recovery takes hold, focus will need to shift toward raising countries’ productive capacity.

Addressing unemployment calls for greater private sector-led growth.

Low integration with global economy means losing out on the upside potential.


October 2009

Full report and copy of the presentation: Full report and copy of the presentation: http://www.imf.org/external/pubs/http://www.imf.org/external/pubs/

ft/reo/2009/MCD/eng/mreo1009.htmft/reo/2009/MCD/eng/mreo1009.htm

What do you think?What do you think?Make your point on the related blog:Make your point on the related blog:

http://blog-imfdirect.imf.orghttp://blog-imfdirect.imf.org

Please visit the IMF’s websitePlease visit the IMF’s website

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