Economic Outlook
With a worsening global environment, the MENA region is expected to be faced with several challenges including a global slowdown and the tightening of global financial conditions. Oil exporters are currently benefiting from high energy prices, while middle income economies are feeling the constraints of financial instability. Low income countries are struggling with high commodity prices and the lingering effects of COVID, including limited progress with vaccinations. Although MENA experienced a growth in GDP in 2022, IMF predicts that worsening global conditions will weigh on the region in 2023 with growth projected to slow to 3.6%. Inflation has continued to increase and will remain in double digits through 2023 for the third consecutive year.
Despite challenging conditions, global economic activity has proved to be resilient thus far and is anticipated to continue with a “multi speed recovery”. Restoring price stability, tackling food insecurity, mitigating the cost-of-living crisis, and protecting the vulnerable are noted as the most pressing policy priorities for the region. (IMF Regional Outlook)
Prospects
Growth in MENA is projected to decelerate to 3.5 percent in 2023 and to 2.7 percent in 2024. The regional slowdown is mainly on account of a fading boom in net oil exporters where growth is expected to slow to 3.3 and 2.3 percent in 2023 and 2024, respectively, from 6.1 percent in 2022. While the estimated rebound in 2022 in Saudi Arabia was well above last June’s forecast, projections for growth for 2023 and 2024 have been revised down, to 3.7 percent and 2.3 percent, respectively. The downward revision to growth prospects reflects expected deceleration in major trading partners, new oil production cuts, and lagged effects of tightening domestic monetary policy. Growth in Iraq is forecast to slow to 4.0 percent in 2023 and 2.9 percent in 2024, below its pre-pandemic pace. Water and electricity shortages, as well as political instability and violence, are likely to impede a stronger expansion. The Syrian Arab Republic is forecast to contract further in 2023. Its economy is facing multiple shocks, including climate impacts, ongoing violence, policy uncertainty, cholera outbreaks, and fuel shortages.
As a result of the conflict, incomes have halved between 2010 and 2020, and households are facing unprecedented levels of poverty and food insecurity. In the region’s net oil importers, growth is projected to be steady over 2023-24, at slightly above 4 percent a year. Growth in the Arab Republic of Egypt, while continuing to benefit from earlier reforms, is expected to slow to 4.5 percent in FY2022/23 (July 2022- June 2023), as high inflation erodes real wages, weighing on domestic consumption. Weakening growth of external demand is also likely to limit activity in the manufacturing and tourism sectors. Fiscal and monetary policy tightening to rein in high inflation and a large current account deficit are expected to further restrain growth. In Morocco, growth is projected to pick up to 3.5 percent in 2023—below previous projections—and to 3.7 percent in 2024 as its agriculture sector recovers gradually from last year’s drought. Government spending is expected to partially offset weakness in private consumption stemming from high inflation. Risks: Risks to growth remain to the downside. Spillovers from further weakness in key trading partners, tighter global financial conditions, increasing climate-related risks, rising social tensions, and political instability highlight the possibility of further economic contractions and increasing poverty. A further deterioration in global and domestic financial or economic conditions could see economies with large macroeconomic imbalances fall into crisis.
Gender
Women are almost three times more likely to be unemployed than men, despite the fact that more young women than men in the Arab world are graduating from universities.
Private-sector development is a critical part of the solution. Entrepreneurship, access to finance, increasing IT connectivity, and reducing regulatory burdens for small businesses can help fill the jobs gap.
Youth
At an estimated 25%, the youth unemployment rate in the MENA region is almost five times higher than the joblessness rate for older adults. In North Africa, youth unemployment is higher than the Arab average: 30% for both sexes and 45% for young women.
In the MENA region, youth unemployment rates have exceeded 25% since 1991. By the early 2000s, for every job that was created, four jobseekers entered the labor market. High labor force growth, skill mismatches, large public sectors, and high reservation wages have been key factors behind the large and persistent level of youth unemployment. (IMF)
