World Bank sees 5.2% contraction in MENA, in line with IMF

The World Bank anticipates that economies in the Middle East and North Africa will contract more deeply than initially estimated, fueled by the double burden of lower crude prices and the spread of Covid-19.

The global lender revised its estimate to a 5.2 per cent shrinkage this year versus an April forecast of a 1.1 per cent contraction, according to its updated regional economic outlook published on Sunday.

The outlook is in line with that of the International Monetary Fund, which last week predicted gross domestic product would contract 5 per cent in 2020.

Even before this year’s crises, “the loss of potential growth because of the lack of transparency, lack of governance and the very heavy role of the state” had dragged the region’s economies downward, Ferid Belhaj, the bank’s vice president for MENA, said in an interview.

The dual shock of lower Brent prices and the coronavirus pandemic this year has taken an especially heavy toll on the region, home to the world’s largest crude exporters.

MENA’s 2020 current-account deficit is forecast at 4.8 per cent of GDP, versus a 1 per cent shortfall in October 2019. The fiscal deficit is seen at 10 per cent of GDP, from 4.7 per cent.

Around the world, nations have had to halt their economies to contain the spread of Covid-19, while injecting stimulus directly and indirectly. Virus cases are spiking again in many regions, and countries including the UK, Italy and France are considering reimposing lockdowns, fueling concerns about a further economic downturn and more uncertainty.

The World Bank’s revision this year reflects “an increasingly pessimistic outlook for the regional economy,” according to the report. “The region is expected to recover only partially in 2021.”

More from the World Bank:

• The largest GDP downgrade was for developing oil exporters, now forecast 8 percentage points lower than in October.
• Oil demand won’t soon recover to pre-pandemic levels, with crude prices remaining below $50 per barrel through the end of 2022.
• Foreign direct investment in Gulf countries during the first six months of 2020 was half that from a year earlier, and a quarter that of non-GCC MENA countries in the year-ago period.
• The region will need much international support to help it get through the “rough patch.”