Arab economies face an uncertain 2012

Posted on January 3, 2012


Crude prices will remain the fulcrum on which MENA economies will pivot.

Saudi Arabia is the largest net exporter of oi...

Saudi Arabia is the largest net exporter of oil in the world. (Image via Wikipedia)

Oil is the economic grease of the Middle East and North Africa and never has this been more apparent than today. As the exporters and importers of the Black Gold look toward 2012 for a measure of stability and growth, the price of crude will play its usual role as the fulcrum on which economies will pivot. The International Monetary Fund has forecast a slowdown in growth for the oil exporters of the region, from a cumulative 4.9% in 2011 to 3.9% this year, as oil revenues decrease from softer prices. Saudi Arabia, the engine of the Gulf, will probably see growth slow to 3.6%, from 6.5% in 2011, according to the IMF. Slowing growth in the largest oil-consuming nations is expected to decrease demand for the commodity, leading to lower prices.

The same phenomenon, on the other hand, will help the oil-importing nations of the MENA region decrease costs and post an increase in economic growth. The IMF forecasts GDP growth in the net oil importers of the region will almost double to 2.6%, from 1.3% in 2011, as they recover gradually from the political ravages of the Arab Spring.

The Saudi economy, which is traditionally led by strong government spending, will receive a boost from the stimulus packages announced for 2011 and 2012. With a Keynesian panache, Saudi Arabia announced in March 2011 a massive spending program involving higher wages and as much as USD 67 billion to be spent on house-building. Even though total spending is budgeted to fall in 2012 compared with 2011, the kingdom plans to step up spending on education, health care and other social programs in its SAR 690 billion budget for 2012.

But the whole MENA region faces substantial risks, including the chance of continued political upheaval and a deepening crisis in the Eurozone, which could affect global growth and demand for oil, and lead to higher financing costs for certain Middle East countries. Western financial crises usually take four to eight months to have their impact on the region, so the time for the latest Eurocrisis to affect MENA is right about now.

— Yazad Darasha

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