Middle East and Central Asia

Regional Economic Outlook Update: Middle East and Central Asia

May 2018

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CCA and Global Developments: Implications for the Caucasus and Central Asia Region

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Жаһандық даму үрдістері

Global growth continued to strengthen in the second half of 2017 and is now estimated at 3.8 percent for the full year, the highest level since 2011 and 0.2 percentage point stronger than forecast in the October 2017 World Economic Outlook (see table). Growth is projected to strengthen further to 3.9 percent in 2018 and 2019, also 0.2 percentage point higher than anticipated in October. In particular, Russia, an important source of trade and remittance flows for countries in the Caucasus and Central Asia (CCA) region, returned to positive growth in 2017, and its economy is projected to expand by 1.7 percent this year, slightly higher than projected in October, before moderating to 1.5 percent in 2019. The region should also benefit from the marginal strengthening of the outlook for China , a key partner for the region. However, the global outlook also entails higher interest rates as monetary policy continues to normalize in advanced economies. This could tighten credit conditions in the CCA region.

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Risks to the global outlook are broadly balanced in the near term, but are skewed to the downside over the medium term. Specific risks include a rapid tightening of global financial conditions, while escalating import tariffs or a shift toward inward-looking policies could harm international trade, reduce global growth, and dampen commodity prices. APSP Crude Oil and SandP 500 Index

The outlook for oil prices remains highly uncertain, largely reflecting supply-side uncertainty. Oil prices grew strongly in the second half of 2017, rising above $65 a barrel in January, supported by the improved global growth outlook, extension of the OPEC+ agreement limiting oil production through the end of 2018, unplanned outages, and geopolitical tensions. More recently, with rapidly rising US shale production, the price of oil has edged down. In this context, while the oil price assumptions for 2018 and 2019 have been revised upward relative to the October 2017 Regional Economic Outlook: Middle East and Central Asia (see figure), the medium-term outlook for oil prices remains subdued.

Caucasus and Central Asia Real GDP Growth 2016-19

See the April 2018 World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor for a more comprehensive discussion of the global outlook.

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Caucasus and Central Asia: A Need to Capitalize on the Current Growth Momentum

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Кавказ және Орталық Азия: Ағымдағы өсім қарқынын капиталдандыру қажеттілігі

Economic growth in the Caucasus and Central Asia (CCA) region exceeded expectations in 2017, in part due to stronger oil prices, remittances, and external demand, which are not expected to be sufficient, however, to maintain this growth momentum in 2018–19. Growth is projected to stabilize in the medium term around levels that are below the average reached in the first decade of this century. To avoid a new reality of subdued growth, a more deliberate push toward a private-sector-led growth model is needed now. That would enable countries to effectively leverage the opportunities created by the current rebound in global activity and the prospect of closer regional and global integration. In addition to preserving macroeconomic stability, including by addressing fiscal and financial sector challenges, countries therefore need to make further progress on structural reforms.

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MENAP and Global Developments: Implications for the Middle East, North Africa, Afghanistan and Pakistan Region

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Global growth continued to strengthen in the second half of 2017 and is now estimated at 3.8 percent for the full year, the highest level since 2011 and 0.2 percentage point stronger than forecast in the October 2017 World Economic Outlook (see table). Growth is projected to strengthen further to 3.9 percent in 2018 and in 2019, also 0.2 percentage point higher than anticipated in October. Stronger prospects for the euro area should benefit the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, especially oil importers, through higher exports. The region should also benefit from a marginal strengthening of the outlook for China, a key partner for the region. However, the global outlook also entails higher global interest rates as monetary policy continues to normalize in advanced economies. This could increase fiscal vulnerabilities and tighten credit conditions in the MENAP region, especially if the risk that global financial conditions tighten more than expected materializes.

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Risks to the global outlook are broadly balanced in the near term, but are skewed to the downside over the medium term. APSP Crude Oil and SandP 500 IndexIn addition to the risk of tighter financial conditions, escalating import tariffs or a shift toward inward-looking policies could harm international trade, reduce global growth, and dampen commodity prices. And the region continues to be exposed to the risk of worsening geopolitical tensions and conflicts. 

The outlook for oil prices remains highly uncertain, largely reflecting supply-side uncertainty. Oil prices grew strongly in the second half of 2017, rising above $65 a barrel in January, supported by the improved global growth outlook, extension of the OPEC+ agreement (limiting oil production through the end of 2018), unplanned outages, and geopolitical tensions. More recently, with rapidly rising US shale production, the price of oil has edged down. In this context, while the oil price assumptions for 2018 and 2019 have been revised upward relative to the October 2017 Regional Economic Outlook: Middle East and Central Asia (see figure), the medium term outlook for oil prices remains subdued. 

Real GDP Growth 2016-19

 

 

 

 

 

 

 

 

See the April 2018 World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor for a more comprehensive discussion of the global outlook.

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MENAP Oil-Exporting Countries: Time to Accelerate Reforms

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Economic growth in oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) bottomed out in 2017 and is expected to accelerate in 2018–19. This largely reflects the continued recovery in non-oil activity as many countries are slowing the pace of fiscal consolidation in support of domestic demand. Risks to the outlook are skewed to the downside. These include the possibility of a sharp tightening of global financial conditions, growing trade tensions, and geopolitical strains—while the outlook for oil prices remains subdued and highly uncertain. If these risks materialize, they could trigger potentially significant fiscal and financing pressures for many countries in the region, affecting prospects for continued fiscal consolidation and economic recovery. Weak growth prospects over the medium term underscore the importance of accelerating planned structural reforms.

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MENAP Oil-Importing Countries: Risks to the Recovery Persist

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The growth recovery in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) oil‑importing countries is set to continue in 2018, lifted by gains from ongoing reforms, improved domestic confidence in some countries, and a steady upswing in external demand. While the outlook remains broadly positive, with a moderate uptick in economic activity projected for 2019, it has softened for most countries relative to the forecast in the October 2017 Regional Economic Outlook, and risks remain skewed to the downside. In addition, growth is expected to remain too low to provide enough jobs for the expanding labor force. Generating broad-based growth that benefits all will require an acceleration of structural reforms that improve the business climate and boost productivity. The need for sustained fiscal consolidation that protects much-needed social spending and investment while ensuring stability also persists.

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Statistical Appendix

Tables   Excel

The IMF’s Middle East and Central Asia Department (MCD) countries and territories comprise Afghanistan, Algeria, Armenia, Azerbaijan, Bahrain, Djibouti, Egypt, Georgia, Iran, Iraq, Jordan, Kazakhstan, Kuwait, the Kyrgyz Republic, Lebanon, Libya, Mauritania, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tajikistan, Tunisia, Turkmenistan, the United Arab Emirates, Uzbekistan, the West Bank and Gaza, and Yemen.

The following statistical appendix tables contain data for 31 MCD countries. Data revisions reflect changes in methodology and/or revisions provided by country authorities.

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A number of assumptions have been adopted for the projections presented in the Regional Economic Outlook: Middle East and Central Asia. It has been assumed that established policies of national authorities will be maintained, that the price of oil1 will average US$62.3 a barrel in 2018 and US$58.2 a barrel in 2019, and that the six-month London interbank offered rate (LIBOR) on U.S.-dollar deposits will average 2.4 percent in 2018 and 3.4 percent in 2019. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would in any event be involved in the projections. The 2018 and 2019 data in the figures and tables are projections. These projections are based on statistical information available through early April 2018.

What’s new: Arithmetically weighted averages are used for all data aggregates except consumer price index, for which geometric averages are used. Aggregates for fiscal data (tables 10–17) are sums of individual country data after conversion to US dollars at the average market exchange rates in the years indicated, in percent of aggregate GDP, also in US dollars 2. The impact of these changes has been relatively insignificant on inflation, and more significant on fiscal balances, but does not change the overall assessment of the outlook.

2011 data for Sudan exclude South Sudan after July 9; data for 2012 onward pertain to the current Sudan.

All data for Syria are excluded for 2011 onward due to the uncertain political situation.

All data refer to the calendar years, except for the following countries, which refer to the fiscal years: Afghanistan

(March 21 to March 20 until 2011, and December 21 to December 20 thereafter), Iran (March 21 to March 20), Qatar (April to March), and Egypt and Pakistan (July to June) except inflation.

Data in Tables 7 and 8 correspond to the calendar year for all aggregates and countries, except for Iran, for which the Iranian calendar year (beginning on March 21) is used.

Data for West Bank and Gaza are included in all tables except in 3–6, 8, 10, 13, and 14.

In Tables 3, 6, 13, and 14, “oil” includes gas, which is also an important resource in several countries.

REO aggregates are constructed using a variety of weights as appropriate to the series:

  • Composites for data relating to the domestic economy (Tables 1, 3, 7–8), whether growth rates or ratios, are weighted by GDP valued at purchasing power parities (PPPs) as a share of total MCD or group GDP. Country group composites for the growth rates of broad money (Table 9) are weighted by GDP converted to U.S. dollars at market exchange rates (both GDP and exchange rates are averaged over the preceding three years) as a share of MCD or group GDP.
  • Composites relating to the external economy in nominal terms (Tables 18–20 and 22) are sums of individual country data. Composites relating to external economy in percent of GDP (Tables 21 and 23) are weighted by GDP in U.S. dollars as a share of MCD or group GDP in U.S. dollars.
  • Composites in Tables 2, 4, and 5 are sums of the individual country data.

The following conventions are used in this publication:

  • In tables, ellipsis points (. . .) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.

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1. Simple average prices of U.K Brent, Dubai, and West Texas Intermediate crude oil.

2. These changes are introduced to bring MCDREO aggregation methodology in line with the WEO. Please refer to http://www.imf.org/external/pubs/ft/weo/data/changes.htm for more information. 

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