In its most recent regional economic outlook, the International Monetary Fund (IMF) expects the Middle East and North Africa (MENA) region’s gross domestic product (GDP) to grow moderately by 2.7 percent in 2024 from 1.9 percent in 2023. In 2025, the IMF expects growth to strengthen by 4.2 percent as the impact of temporary factors such as regional conflicts fade.
However, those projections signify a 0.7 percent downgrade from last October’s projections due to several factors including regional tensions, Red Sea shipping disruptions, and oil production cuts. Those factors have raised both debt levels and borrowing costs across the region.
In its report, the IMF expects the MENA’s oil-exporting economies to see a 2.9 percent growth in 2024 from 1.9 percent in 2023. Moreover, it expects emerging markets and middle-income oil-importing economies across the region to grow by 2.8 percent, down from 3.1 percent in 2023. Finally, the report expects growth to improve in low-income oil-importing countries, but remain negative at -1.4 percent in 2024, up from -9.6 percent in 2023.
Red Sea disruptions remain a concern
In the MENA region, the IMF expects Red Sea disruptions to remain a concern for trade and shipping costs. Around 12-15 percent of global trade passes through the Suez Canal. In particular, Egypt remains most vulnerable to these disruptions as revenues from the Suez Canal made up 1.2 percent of its GDP in 2022-2023. Between November 2023 and February 2024, trade through the Suez Canal dropped by more than half, from 38 million metric tons to 16 million metric tons.
Voluntary oil production cuts impact growth
Oil production cuts across the MENA region largely drove growth in oil and gas producers in 2023. However, following voluntary production cuts by some OPEC+ countries, the Gulf Cooperation Council (GCC) countries experienced a decline in hydrocarbon growth. As a result, real GDP growth in the GCC slowed to 0.4 percent, despite robust non-oil growth.
Across the GCC region, the IMF expects non-oil activity to remain the main contributor to growth in the years ahead. The voluntary oil production cuts, especially in Saudi Arabia, will continue to hamper growth this year. Hence, the IMF revised its growth for GCC members down by 1.3 percentage points since October to a moderate 2.4 percent in 2024. The fund also expects growth to rise to 4.9 percent in 2025 if oil production picks up before settling at about 3.5 percent over the medium term. As for non-GCC oil exporters, the IMF revised its growth outlook up to 3.3 percent in 2024 from 3 percent in October.
Middle- and low-income countries
Emerging market and middle-income countries in the MENA region continue to face rising fiscal pressures, with rising interest payments eroding efforts to strengthen fiscal positions. The regional tensions add another layer of uncertainty, with the duration and impact of tensions remaining highly uncertain. As for low-income countries, conflicts are also adversely impacting activity. However, the IMF expects this trend to turn for a few MENA economies as it projects an improvement in economic conditions in 2025.
Monetary tightening cycles and inflation
On a positive note, monetary tightening cycles seem to have ended in most countries as inflation is approaching its historical average in many MENA economies, with inflation close to or even below average in one-third of the region’s economies. The IMF expects inflation to fall to 15.4 percent in 2024 and 12.4 percent in 2025. Excluding Egypt and Sudan, average inflation across the region is below 10 percent. Finally, the IMF warns policymakers of premature or excessive easing. In light of high debt levels, fiscal policy should focus on bringing them down decisively. Amid heightened uncertainty, the IMF urges countries in the MENA region to implement reforms to fortify their fundamentals. This includes strengthening institutions and seizing potential opportunities from new trade corridors by reducing long-standing trade barriers, diversifying products and markets, and improving infrastructure.
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