Govt policy will drive recovery in Middle East: IMF

For the last year or so, the International Monetary Fund has revised its world economic outlook every few weeks and “every time it got worse,” says Masood Ahmad, Director of IMF’s Middle East and Central Asia Department.

But for the first time in a seemingly long time, Ahmad said the IMF has issued a new forecast in which “you can see the world turning” toward recovery, albeit slowly.
In a packed gathering at the Dubai International Financial Centre on Sunday, Ahmad brought welcomed news to business leaders noting that “the basic message is the worst of the recession is behind us now.”

Latest statistics released in the IMF’s third-quarter review Regional Economic Outlook for Middle East and Central Asia show that the “recovery is driven largely by policy stimulus,” essentially spending by governments to return to some semblance of stability, Ahmad said.

And while the spending is buffering countries such as the United Arab Emirates in the Middle East against harsher political declines, Ahmad said that for the recovery to be sustainable in the months ahead, there must be spending from the private sector.
Good signs are appearing on the horizon, he said, including numbers that show exports have increased and production has returned.

“You can see the turnaround beginning to take effect,” he said, and consumer confidence is slowly beginning to return.

That said, unemployment is expected to grow higher into late 2010 even as the economy slowly rebuilds itself from the late-2008 collapse of the world markets, he said.

The United States, for example, is seeing unemployment approach 10 per cent, the highest jobless rate since 1983.

The uncertainty of the continued jobless rate will still represent big “human and social consequences,” Ahmad said.

In its report, the IMF said that Middle East oil exporters such as the United Arab Emirates, were “directly hit by the global financial crisis through a sharp decline in oil prices and a sudden drying up of capital inflows, but the impact has been greatly mitigated by counter-cyclical government spending.”

Oil surpluses enjoyed by oil-exporting countries in the region, the IMF report states, are expected to fall from $380 billion in 2008 to $50 billion this year.

The losses, however, may be recouped next year as the recovery slowly gains momentum around the world.

With a “reemergence of global demand, oil revenues will increase, allowing oil exporters to rebuild their international reserve positions – by more than $100 billion in 2010,” stated the report.

Increased demand for oil in 2010 mirrors expectations that the world economy will expand by three per cent next year.

“After a deep global recession, world economic growth in 2010 is expected to turn positive as wide-ranging public intervention has supported demand and lowered uncertainty and systemic risk in financial markets,” the report stated.

“The recovery is expected to be slow and households in economies that suffered asset price busts will continue to rebuild savings while struggling with high unemployment.”

UAE projections by IMF