Bracing for a downturn: MENA GDP to fall to 1.9 percent this year

GCC countries’ growth rate to slip to 1 percent
Bracing for a downturn: MENA GDP to fall to 1.9 percent this year
Factors like oil cuts and skyrocketing inflation are contributing to MENA’s economic slowdown

After boasting a robust 6 percent growth in their gross domestic product (GDP) last year, economies of the Middle East and North Africa (MENA) region are likely to face a severe slowdown. According to a new World Bank MENA Economic Update (MEU), the GDP could decline to 1.9 percent this 2023.

The document, titled “Balancing Act: Jobs and Wages in the Middle East and North Africa When Crises Hit,” noted that several factors are contributing to this impending downturn. These include oil production cuts and suppressed oil prices. Global financial constraints and soaring inflation are further affecting the region’s economic climate.

GCC to bear the economic brunt

The report further predicted that Gulf Cooperation Council (GCC) countries will experience the biggest impact among MENA economies this year. GCC member states, which include Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman, are heavily reliant on oil exports.

These nations could collectively witness a drastic fall in real GDP growth, averaging 1 percent in 2023. Representing a stark deceleration from 2022’s 7.3 percent, this decline is primarily due to reduced oil production and lower oil prices. 

Additionally, developing oil-exporting countries in the MENA region could also experience a significant drop in growth. Estimates show that it could fall from 4.3 percent in 2022 to 2.4 percent this year.

Read: Oil prices decline ahead of Fed’s decision, heightening uncertainty

On the other hand, MENA countries that import oil will also likely see a decline, albeit at a lower rate: from 4.9 percent in 2022 to 3.6 percent in 2023.

Across the region, per capita income could plummet from 4.3 percent growth in 2022 to a mere 0.4 percent in 2023 across the region. Experts often use this statistic to gauge improvement in livelihoods. According to the report, only eight out of 15 MENA economies are likely to return to pre-pandemic real GDP per capita levels by the end of the year.

Millions of jobs lost

Apart from the predictions for MENA economies, the latest World Bank document also discussed the region’s labor market performance.

Notably, it highlighted MENA’s response to unemployment during contractions. It is nearly double that of other emerging markets and developing economies (EMDEs). Specifically, the economic shocks of the past few years led to an additional 5.1 million unemployed people in the region.

As Roberta Gatti emphasized in a statement, this only exacerbated the already high levels of unemployment before COVID hit. Gatti is the World Bank’s chief economist for the MENA region. 

MENA economies

“Unemployment carries long-term consequences. Being unemployed even for a short time can lead to worse career paths, lower earnings, and higher chances of unemployment or working in the informal sector even years after the job loss,” she further explained.

Ferid Belhaj, the World Bank vice president for the MENA region, also expressed his concerns. He particularly noted that 300 million people are set to enter the labor market by 2050. 

“Without proper policy reforms, we could inadvertently worsen the enduring structural challenges faced by MENA’s labor markets as far as the eye can see. The time for reform is now,” he pointed out.

‘Balancing act’

The latest MENA update from the World Bank navigates “the delicate trade-off between more unemployment and lower real wages.” To mitigate the effects of downturns, economists must balance these two.

Gatti noted that both higher unemployment rates and lower real wages are not desirable. Unemployment has repercussions on the involved individuals. Meanwhile, declines in real wages can degrade standards of living and lead to a more pronounced income inequality. To resolve the trade-off, she mentioned that “flexible real wages coupled with well-targeted cash transfers is the superior approach to reduce the long-term economic costs on the families in MENA borne by macroeconomic shocks.”

Social safety nets such as large-scale cash transfer programs can positively impact consumption and asset accumulation. They can also improve the recipients’ psychological well-being. These monetary aids provide a much-needed buffer against economic shocks, lending particular help to vulnerable segments of the population.

As for addressing labor market challenges, the report also highlighted that active labor market policies (ALMPs) could only work in the medium or long term. Previous studies showed mixed short-term results. ALMPs encompass a range of initiatives, including on-the-job training programs and skills training interventions. They also cover job search assistance, public sector employment programs, and entrepreneurship support. 

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