Middle Eastern economies maintain strong growth

Dubai: The Middle East and Central Asia region has continued to experience strong growth in 2008, outpacing global growth for the ninth year in a row and is expected to remain resilient against the global economic slowdown, according to the International Monetary Fund's econ-omic outlook for the region.

The global credit crunch thus far has had a mixed impact on regional financial markets. Although equity markets have experienced a deep correction and sovereign spreads have widened across the Middle East, the IMF said most domestic bond markets have remained broadly steady across the region.

Banking sectors in the region generally remain sound with continued improvements in prudential indicators and strengthened banking supervision, although liquidity pressures have emerged in a few countries.

Inflation continues to remain a key issue in Middle East countries, and is well above the average of all developing and emerging market countries. The main sources of inflationary pressures are the surge in food and fuel prices.

Driven by the oil exporters, external positions have continued to strengthen in 2008 despite the negative impact of higher food prices on imports, and emerging market countries have seen a surge in foreign direct investment.

Real GDP growth is projected to slow to 6 per cent in 2009. For the Gulf countries, a pick-up in oil production should offset a moderation of activity in the non-oil sector in 2008-09.

Inflation should gradually ease in response to tighter macroeconomic policies, and as commodity prices soften. External and fiscal positions should remain strong, driven primarily by the continued large surpluses in oil-exporting countries.

"Inflation could be higher, if international food and oil prices surge once again, or if macroeconomic policy is not sufficiently tight," said Mohsin Khan, Director of the IMF's Middle East and Central Asia Department.

"A continuation of the recent correction in commodity prices would lessen inflationary pressures, as would a further recovery of the US dollar, for those countries that peg their currencies to the US dollar."