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Abu Dhabi, UAEMonday 18 June 2018

World Bank revises up Mena growth forecast on global economy, oil prices

But it warns that economic diversification efforts have failed and unemployment remains high

In the Arabian Gulf, growth that languished since the three-year oil slump is expected to recover, but a slower pace, according to the World Bank. Steve Gonzales/AP
In the Arabian Gulf, growth that languished since the three-year oil slump is expected to recover, but a slower pace, according to the World Bank. Steve Gonzales/AP

Growth in the Middle East and North Africa region will rebound to 3.1 per cent in 2018 after more than halving in 2017, thanks to higher oil prices, reforms and global economic expansion, the World Bank said on Monday.

Mena growth, which fell to 2 per cent in 2017 from 4.3 per cent in 2016, is expected to be broad-based, including 3 per cent forecast expansion in oil exporting countries, double the rate of 2017 and 4 per cent in oil importing countries. The Mena growth projection for 2018 is 0.1 per centage point higher than its October forecasts.

But the Washington-based lender warned a second wave of reforms are needed in the region to absorb the millions of unemployed youth because diversification has failed.

“There are grounds for optimism,” said Hafez Ghanem, World Bank vice-president for Mena. “Now is the time to focus on creating more jobs and economic opportunities for youth. The positive outlook is an opportunity to speed up reforms for a renewed private sector as an engine of growth and job creation.”

Mena is benefiting from a recovery in global growth and oil prices, which have topped this month $70 per barrel for the first time since 2014 on global production cuts and geopolitical tensions. In January, the IMF revised up its projections for global economic growth for 2018 and 2019 on the back of an unexpected uptick in Asia and Europe as well as US tax cuts that are set to propel growth in the country along with its trading partners. The fund now forecasts the global economy growing at 3.9 per cent in 2018 and 2019, up 0.2 percentage points from its October projections.

In the Arabian Gulf, growth that languished since the three-year oil slump is expected to recover, but a slower pace, according to the World Bank.

Gulf growth will expand more than five-fold in 2018-2020 to 2.7 per cent, compared to 0.4 per cent in 2017, but the rate is still lower than the average of 4.6 per cent achieved between 2010 and 2014, the bank said. Growth in the GCC will pick up in all countries except Bahrain because of lower oil prices and economic uncertainties.

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In the UAE, growth projections were lowered to 2.5 per cent for 2018, from the October projection of 3.1 per cent. Growth in 2017 was estimated at 2 per cent, down from 3 per cent in 2016.

The World’s Bank’s 2018 growth projection for the UAE is lower than the government’s estimate of 3.6 to 3.9 per cent.

“In the UAE, growth will reach 3.3 per cent [up from 2 per cent in 2017] by the end of the decade,” the World Bank said. “The possible reversal of Opec-mandated production cuts after 2018, a moderate increase in projected oil prices, improved oil production capacity, and recent stabilisation policies and reforms are expected to contribute positively to the economic recovery.”

Mena countries, however, have failed in their diversification efforts despite undertaking reforms to lower dependance on oil income. The region’s total non-oil exports are lower than Finland’s, although it has a population exceeding 300 million and Finland has only 5 million people.

In the Gulf, the share of oil in federal government revenue is 22.5 per cent of GDP and 63.6 per cent of exports.

“Decades of efforts to diversify their economies [in Mena] away from oil have not worked,” the bank said. “At about 14 per cent, Mena has the world’s lowest share of

no-noil manufactured exports and the highest share of fuel exports - between 60 and 80 per cent. Mena countries are the least integrated into the world economy. The region’s 6 percent ratio of foreign direct investment to GDP is considered the world’s lowest.”

Mena countries have also failed to create enough jobs and tackle unemployment, which exceeds 11 per cent and is above 30 per cent among the youth. The region needs high tech jobs in order to lower unemployment, the bank said.