1. 1 Regional Economic Outlook Middle East, North Africa, Afghanistan, and Pakistan Masood Ahmed Director, Middle East and Central Asia Department International Monetary Fund May 2009

2. INTERNATIONAL MONETARY FUND May 2009 2 MENAP Countries Oil Exporters (12) Oil Importers (10)

3. INTERNATIONAL MONETARY FUND May 2009 3 Outline  World Economic Outlook  MENAP Economic Outlook

4. INTERNATIONAL MONETARY FUND May 2009 4 World Economic Outlook: Key Messages  Financial markets remain highly stressed.  The world economy will contract in 2009 by around 1¼ percent before recovering gradually in 2010.  Emerging economies face dramatic drops in capital inflows, demand for their exports, and commodity prices.  A third wave of the global financial crisis is hitting the world’s poorest and most vulnerable countries.  Turning around global growth depends critically on concerted policy actions to stabilize financial conditions, as well as sustained strong policy support to bolster demand.

5. INTERNATIONAL MONETARY FUND May 2009 5 CDS Spreads for High-Grade Financials (Basis points) Systemic risks remain elevated despite forceful policy efforts. Source: Bloomberg.

6. INTERNATIONAL MONETARY FUND May 2009 6 Equity markets and consumer confidence may be stabilizing, albeit at very low levels. Equities (1/1/2007=100; FTSE) Consumer Confidence (Jan. 2005=100)

7. INTERNATIONAL MONETARY FUND May 2009 7 Real GDP Growth (In percent; quarter on quarter annualized) Unemployment Rate 1/ (In percent) Across the globe, GDP is falling and unemployment is rising... 1/ Aggregated using total labor force as weights. 2/ Excludes China, India, Indonesia, Hungary, and Pakistan.

8. INTERNATIONAL MONETARY FUND May 2009 8... but the pace of contraction in economic activity is showing tentative signs of moderating... Merchandise Exports (Annualized percent change) 1/ Industrial Production (Annualized percent change) 1/ 1/ Three-month moving average.

9. INTERNATIONAL MONETARY FUND May 2009 9... and falling demand and commodity prices should keep inflation in check. Global Headline Inflation (Percent change from a year earlier)

10. INTERNATIONAL MONETARY FUND May 2009 10 The global economy is set to contract in 2009... 20092010 World-1.31.9 Advanced Economies-3.80.0 United States-2.80.0 Euro Area-4.2-0.4 Japan-6.20.8 Emerging and Developing Economies1.64.0 China6.57.5 India4.55.6 Russia-6.00.5 Real GDP Growth (In percent)

11. INTERNATIONAL MONETARY FUND May 2009 11... and to recover only gradually in 2010.  Recovery in 2010 is predicated on:  Concerted policy actions to stabilize financial conditions.  Strong macroeconomic policy support to bolster demand.  A gradual improvement in credit conditions.  Cushioning effect from sharply lower oil and commodity prices.  Nonetheless, output gaps will continue to widen through 2010, implying rising unemployment.

12. INTERNATIONAL MONETARY FUND May 2009 12 Risks for the world economic outlook are to the downside.  Further delays in implementing policies to stabilize financial conditions.  Deflation risks could reinforce a deeper and longer downturn.  Rising threat of corporate defaults in emerging economies.  Risks of trade and financial protectionism.  Sovereign fiscal sustainability concerns.  But, there is upside potential, hinging on bold implementation of policies.

13. INTERNATIONAL MONETARY FUND May 2009 13 MENAP Economic Outlook MENAP Economic Outlook ►Oil exporters ►Oil importers

14. INTERNATIONAL MONETARY FUND May 2009 14  Most oil exporters are maintaining high levels of capital spending.  Declining asset prices and slowing economies are putting some strain on corporate and bank balance sheets. Oil Exporters: Key Messages

15. INTERNATIONAL MONETARY FUND May 2009 15 The collapse in oil prices has caused a drop in exports and government revenue. Crude Oil Price (APSP, In U.S. dollars per barrel) Exports and Revenue

16. INTERNATIONAL MONETARY FUND May 2009 16 (In billions of U.S. dollars) Governments are continuing to spend, and imports remain high.

17. INTERNATIONAL MONETARY FUND May 2009 17 (In percent of GDP) External and fiscal balances are deteriorating... Current account balanceOverall fiscal balance

18. INTERNATIONAL MONETARY FUND May 2009 18 … but contributing to global demand. Imports (In percent of world imports)

19. INTERNATIONAL MONETARY FUND May 2009 19 Despite monetary easing, credit to the private sector has declined. Interest Rates (In percent) Private Sector Credit Growth (Percent change)

20. INTERNATIONAL MONETARY FUND May 2009 20 Asset values have fallen and... Change in Stock Market Indices (Jan 01, 2008 – Apr 30, 2009, in percent) Real Estate Price Index (March 2008=100)

21. INTERNATIONAL MONETARY FUND May 2009 21 Credit Default Swap Spreads (In basis points; Aug 1, 2008 – Apr 29, 2009)... some financial sector indicators have worsened. Corporate Profits (Q4 2008 over Q4 2007)

22. INTERNATIONAL MONETARY FUND May 2009 22 Growth has slowed sharply, especially in the oil sector, but inflation has come down. Growth and Inflation, 2007-10 (In percent) 1/ Excludes Sudan.

23. INTERNATIONAL MONETARY FUND May 2009 23 Oil and Non-oil GDP Growth in the GCC, 2009 14 (Annual percent change)

24. INTERNATIONAL MONETARY FUND May 2009 24 Risks to the Outlook  Prolonged global recession  Further deterioration in balance sheets of financial institutions but  Economic fundamentals remain strong  Reserves remain large

25. INTERNATIONAL MONETARY FUND May 2009 25 Policy Priorities  Maintain public expenditure subject to fiscal sustainability.  In countries with more limited fiscal space, prioritize expenditure.  Keep a close eye on the banking system.  Press ahead with structural reforms.

26. INTERNATIONAL MONETARY FUND May 2009 26  Growth is slowing, and financial sectors are showing some signs of vulnerability.  Protected by oil exporters’ continued spending, the impact on growth has, so far, been moderate.  But a prolonged recession in partner countries could have a significant impact on growth, and unemployment and poverty could rise substantially. Oil Importers: Key Messages

27. INTERNATIONAL MONETARY FUND May 2009 27 In line with lower growth in major trading partners, foreign inflows are weakening. Real GDP Growth (In percent) Foreign Inflows (In billions of U.S. dollars)

28. INTERNATIONAL MONETARY FUND May 2009 28 Effective exchange rates have appreciated. Effective Exchange Rates (Annual percent change, Jan 2008 - Jan 2009)

29. INTERNATIONAL MONETARY FUND May 2009 29 Current Account Balance (In percent of GDP) But current account deficits are projected to decline somewhat.

30. INTERNATIONAL MONETARY FUND May 2009 30 Credit growth to the private sector is decreasing. Private Sector Credit Growth (Percent change)

31. INTERNATIONAL MONETARY FUND May 2009 31 There is limited fiscal space for countercyclical spending. Fiscal Accounts (In percent of GDP)

32. INTERNATIONAL MONETARY FUND May 2009 32 Financial indicators are weakening but, so far, are manageable. Change in Stock Market Indices (Jan 1, 2008 – Apr 30, 2009) Sovereign Bond Spreads (In basis points, Jan 1, 2008 – Apr 30, 2009)

33. INTERNATIONAL MONETARY FUND May 2009 33 Growth has fallen, but inflation has also come down. Real GDP Growth (In percent) Consumer Price Inflation (Average; annual changes in percent)

34. INTERNATIONAL MONETARY FUND May 2009 34 Unemployment is already high, and economic slowdown is likely to raise it further. Jobs Needed to Maintain 2008 Unemployment Rate (In millions) Unemployment Rate (In percent)

35. INTERNATIONAL MONETARY FUND May 2009 35 Risks to the Outlook  Prolonged recession in trading partners and  Reduced availability of external financing could lead to...  Worse outcomes on growth and employment  Weaker corporate and bank balance sheets

36. INTERNATIONAL MONETARY FUND May 2009 36 Policy Priorities  Quickly make use of limited scope for countercyclical policy.  Protect vulnerable groups.  Press ahead with growth-enhancing reforms.

37. 37 Thank you