World Bank upbeat on GCC; warns of uneven Mena growth

High-income oil exporters in the six-nation GCC will benefit the most from surging oil prices wrought by the Ukrainian war, the World Bank said on Thursday as it warned of “uneven and insufficient” economic growth for the whole of Middle East and North Africa in 2022.

Buoyed by oil prices and helped by a vaccination rate much higher than the rest of Mena, the GCC is expected to notch up 5.9 per cent growth this year even as the risk of Covid-19 variants also looms. The GCC’s GDP is estimated to have risen three per cent in 2021 after contracting five per cent in 2020.

GDP per capita, a measure of people’s living standards, is expected to rise 4.5 per cent in the GCC this year and is not seen surpassing pre-pandemic levels until 2023, the World Bank said.

Most Mena economies — 11 out of 17 — are not seen exceeding their pre-pandemic GDP per capita in 2022, it said.

GDP in the Mena region is forecast to rise 5.2 per cent this year after an estimated 3.3 per cent expansion last year and 3.1 per cent contraction in 2020, the World Bank said in a report, noting its own and others’ forecasts had been overly optimistic in the past decade.

For the UAE in particular, the International Monetary Fund has projected a faster real GDP growth rate of 3.5 per cent for 2022 as compared to 2.2 per cent for 2021, purely driven by the non-oil sector which will grow at 3.4 per cent this year.

“The economic recovery is gaining momentum, supported by the UAE’s early and strong health response, continued supportive macroeconomic policies, and rebound in tourism and domestic activity related to the delayed Expo 2020. Overall GDP growth is projected at 2.2 per cent in 2021, driven by non-oil growth of 3.2 per cent. Real oil GDP growth is expected to be close to zero this year in line with the Opec+ agreement,” IMF said in its recent country review.

“Even if this high growth rate for the region as a whole materializes in this context of uncertainty, and there’s no guarantee that it will ... (it) will be both insufficient and uneven across the region,” Daniel Lederman, World Bank lead economist for the Mena region, said.

The war in Ukraine is also disrupting supplies and fuelling already-high inflation leading to higher food prices across the whole region.

For India and the whole South Asian region, the World Bank cut its economic growth forecast, citing worsening supply bottlenecks and rising inflation risks caused by the Ukraine crisis.

The international lender lowered its growth estimate for India, the region’s largest economy, to 8.0 per cent from 8.7 per cent for the current fiscal year to March, 2023 and cut by a full percentage point the growth outlook for South Asia, excluding Afghanistan, to 6.6 per cent.

The World Bank raised its growth forecast for Pakistan, the region’s second-largest economy, for the current year ending in June, to 4.3 per cent from 3.4 per cent and kept next year’s growth outlook unchanged at 4.0 per cent.

“High-income oil exporters in the six-nation Gulf Cooperation Council will benefit the most, but middle-income ones like Iran, Algeria and Iraq are also set to benefit. All Mena countries, however, are net importers of food “and will suffer the consequences,” Lederman said.

“The oil futures markets are predicting that in a few years ahead, the equilibrium price of oil will be no more than $70,” Lederman said.

“So it’s prudent to treat the current circumstances as temporary, or transitory, and do everything that is feasible to save a significant portion of this oil windfall in order to save for the future, especially in times of uncertainty.”

Lederman urged greater transparency from Mena governments regarding their economic data, citing this as a factor behind previously overoptimistic forecasts.

Countries that are net importers of oil and food and which entered 2022 with high levels of debt as a ratio of GDP were most vulnerable, he said, pointing to Egypt and Lebanon as examples. He said food security was a serious risk, even in Morocco, where a drought is expected to turn it from a modest net exporter of food to an importer this year.

— issacjohn@khaleejtimes.com