Mena growth could slow to 0.6% in 2012

Growth in the Middle East and North Africa is expected to slow to a “tepid” 0.6 per cent in 2012, down from one per cent last year, mainly due to the impact of Western sanctions on Iran and a drop in economic activity in Syria and Yemen, the World Bank said in its latest forecast.

By Issac John

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Published: Wed 27 Jun 2012, 10:53 PM

Last updated: Tue 7 Apr 2015, 12:54 PM

The World Bank’s revised growth outlook for the Mena region is drastically down compared to its forecast in January of 2.3 per cent for 2012, a figure it predicted would climb to 3.2 per cent in 2013.

Warning the situation in Europe could worsen, the World Bank said that developing nations should prepare for tougher times by reducing short-term debt, cutting budget deficits and moving to a more neutral monetary stance so that policies can be loosened quickly if needed.

“Developing countries should brace for a long period of financial market volatility and weaker growth as tensions rise over a worsening eurozone debt crisis,” it said.

“Global capital market and investor sentiment are likely to remain volatile over the medium term — making economic policy setting difficult,” said Hans Timmer, director of development prospects at the World Bank.

He said in “The Global Economic Prospects” report that policymakers in developing countries should “move away from fire fighting to strengthen underlying growth potential” by focusing on reforms and infrastructure investment instead of reacting to day-to-day events in the world economy.

The report forecast that growth in developing countries is likely to slow to 5.3 per cent in 2012 from 6.1 per cent last year. The World Bank said it expects it to strengthen to 5.9 per cent in 2013 and to six per cent in 2014.

The World Bank said the global economy, which grew 2.7 per cent last year, would likely expand 2.5 per cent this year, accelerating to three per cent in 2013 and 3.3 per cent in 2014 — unchanged from its January outlook.

Timmer warned a serious financial crisis was still possible even though a “muddle through scenario” was more likely.

“Financial markets are already on edge, with investors flocking to the safety of German and US government bonds out of fear an election in Greece on Sunday could open the door to Athens leaving the eurozone.”

The updated World Bank forecasts project that the eurozone economy will contract by 0.3 per cent this year before resuming growth of 0.7 per cent in 2013 and 1.4 per cent in 2014. It grew 1.6 per cent last year.

Despite increased global financial strains, about 60 per cent of developing countries are operating at or above potential, the World Bank said. In the developing world, eastern and central Europe and the Middle East and North Africa have been hit the hardest.

In sub-Saharan Africa, growth is expected to strengthen to five per cent in 2012 and 5.3 per cent in 2013, up from 4.7 per cent in 2011.

The bank predicted that China’s economic growth would moderate to 8.2 per cent this year from 9.2 per cent in 2011, before recovering to 8.6 per cent in 2013.

“In our view that slowdown is something that brings China to a much more sustainable path,” said Timmer.

“China was one of the countries where you could argue that they had reached capacity constraints,” he added.

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