The global financial turbulence and the ensuing plunge in crude prices are expected to slash growth rates in the Middle East and North Africa (MENA) economies by nearly 50 percent this year, the World Bank said on Sunday. After recording one of its highest growth rates of about six per cent in 2008, the combined GDP of MENA countries is projected to dive to only around three per cent this year, the World Bank said in a study. The downturn will likely be more pronounced in the six-nation GCC and other regional oil producers because of the sharp drop in crude prices and heavy cuts in their oil output, the bank said. From a record $670 billion in 2008, the GCC's oil and gas revenues could plummet to $280bn in 2009 and this will have an adverse impact on their economies and those of other regional nations since Gulf countries are a key source of investment and remittances for other regional states. “GDP among the developing countries of MENA registered a strong six per cent gain during 2008, on the back of surging oil revenues during the first half, continued robust non-oil export performance for the diversified economies, and favorable flows of remittances, tourism receipts and FDI,” it said. “These conditions were not to persist, however, and the onset of the financial crisis in the US in September 2008 began to exact a toll on regional growth into year-end 2008 and 2009. GDP is anticipated to almost halve to 3.1 percent during 2009 as the real side effects of the crisis take firmer hold, and a return to average growth for the region (near 4.5 percent) is not expected before 2011.” The study said it saw no immediate resurgence of the conditions that supported growth over the past five years. It said oil prices are projected to rise only modestly, averaging $66 in 2011, while the European export market will remain flaccid, and slowing of services receipts and remittances will exact a toll on growth for both developing oil exporters and the more diversified economies of the region. It noted that initially the developing countries of MENA were less directly affected by the financial crisis than those of many other developing regions. It said the biggest direct effect from the crisis was the acceleration in the decline of oil prices, adding that their plunge of about 65 per cent from near $150 to $60 has radically reduced government revenues among developing-country oil exporters, especially for the high-income GCC. Over recent years, these countries have become a key source of investment financing, through FDI and other flows, as well as remittances for the diversified developing economies of the region, the bank said. “The dampening of these income and investment flows is an important element contributing to the slowdown in regional growth,” it said. “For the GCC in aggregate, oil and gas revenues are projected to drop from about $670 billion in 2008 to an estimated $280 billion during 2009 - a massive decline equivalent to 38 percent of the group's GDP.” It said oil output among the GCC exporters has been trimmed by some 10.6 percent year-on-year over the course of the past months of 2008 through May 2009, led by large cutbacks in Kuwait, (14 percent) and Saudi Arabia (12.7 percent). Production has been reined in by the developing exporters of the region, with Algerian output declining 11 percent and that of Iran by seven percent. “This development alone will reduce growth in the oil economies of these countries by substantial margins in 2009, carrying overall GDP growth lower by an average of five percentage points compared to 2008. Both Saudi Arabia and Kuwait are projected to slip into recession this year, with growth for all exporters falling from 6.2 percent in 2008 to two percent in 2009.” The study said spillovers from this development to the diversified group of economies are anticipated to be widespread and adverse, running the scope from reduced FDI inflows to lower remittances and reduced tourism from the Gulf to other countries in the region.
