European low demand weigh on recovering Arab countries

DUBAI - Reuters

Libyan forces patrol a street with local residents following clashes between rival militias near Zawiya Street in Tripoli. Oil is helping Libya recover rapidly, the IMF says. EPA photo

Most economies hit by the Arab Spring uprisings will recover slowly next year, grappling with high inflation and rising unemployment due to poor global conditions, the International Monetary Fund (IMF) predicted in a report yesterday.

In its twice-yearly outlook for the Middle East and North Africa, the global lender said the weak demand in Europe and other regions will weigh on the Arab Spring states, it said. In many of those countries, exports are shrinking and have not yet bottomed out

A partial return of political stability could permit somewhat faster growth in the combined output of Egypt, Jordan, Morocco, Libya, Tunisia and Yemen during 2013, the report said. “Growth is expected to remain below long-term trends, and unemployment is expected to increase owing to continued anaemic external demand, high food and fuel commodity prices, regional tensions and policy uncertainty.”

The IMF forecast gross domestic product in the countries excluding Libya would expand by 3.6 percent next year, accelerating from an estimated 2 percent this year and 1.2 percent in 2011. In 2010, the year before the uprisings, GDP grew 4.7 percent.

Because of sluggish global demand, the group’s current account balance of trade in goods and services will improve only marginally next year, to a deficit of 4.6 percent of GDP from this year’s 5.4 percent deficit, the IMF predicted.

It suggested some countries should consider allowing greater flexibility in their exchange rates - code for permitting their currencies to depreciate - in order to stimulate exports, but did not specify which countries.

Inflation risks

Weaker currencies could fuel inflation, which the IMF forecast would rise to 8.6 percent for the group next year, the highest level since 2008, from 7.8 percent this year. Inflation is expected to rise in Egypt and Morocco as they try to curb their large budget deficits by scaling back food and fuel subsidies, the IMF said.

Libya, which ousted its dictator Muammar Gaddafi last year, is a spectacular exception to the pattern of slow recovery because of its oil wealth. Oil output is returning to its pre-civil war level faster than expected.

The country’s GDP shrank 60 percent last year but is expected to rise 122 percent this year, 17 percent in 2013 and 7 percent annually on average between 2014 and 2017, assuming the domestic security situation improves, the IMF predicted. It forecast Libya would run a huge state budget surplus of 19 percent of GDP in 2012, and a current account surplus of 22 percent.