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World Banks Says Growth in the GCC to Surpass 5 Percent This Year


Middle East : 31 May 2011

According to the World Bank, the GCC members are set to continue with a strong pattern of economic growth for this year, surpassing 5 percent, while the balance of the MENA region will experience slower growth rates of 3.6 percent due to inflation as a result of surging prices for fuel and commodities.

The World Bank moved the MENA growth forecast down due to the disruptions in many nations around the region, which are resulting in poorer short-term economic growth of 3.6 percent for this year. This was reduced from the 5 percent previously forecasted. Medium term opportunities are more hopeful and move towards sustainable and inclusive developments as yet unseen in this region.

VP for the World Bank MENA region, Shamshad Akhtar noted that the opportunities opening up for stronger economic participation for the citizens in many Middle Eastern and North African nations are historic. Akhtar stated that if these situations are managed well the transitions could result in notable economic growth and improved standards of living over the mid-term.

Government expenditures across the area are forecasted to increase this year as the various states move towards the expansion of supportive policies and social transfers. These should result in a lighter unemployment burden and help offset rising commodity prices, according to the World Bank report “Regional Economic Outlook: MENA Facing Challenges and Opportunities.”

The bank also warned that inflation is forecasted to rise in the MENA region nations, partially due to government spending and partially as a result of higher commodity prices.

The transitions, however, present opportunities for the nations to break out of past patterns and continue in a fresh direction. Akhtar said that the top priority should be the restoration of private and public investor confidence levels. In this particular region that involves putting into practice an inclusive social policy with dignity and respect of citizens at the forefront. Also the framework of governments need to shift and the macroeconomic stability should be quickly restored. The World Bank noted that this region has mostly recovered after the worldwide fiscal crisis of a few years back. Growth rate predictions were expecting to see the 2011 rates matching the growth seen before the crisis. The short term macroeconomic position and speed and state of economic reformation in the area have been affected by the regime transitions in Egypt and Tunisia, as well as the continued challenges in Libya, Yemen and Bahrain, as well as those in Syria.

Chief economist in the MENA region, Caroline Freund stated that a J-curve pattern tends to follow reform. In this trend things will become worse before getting better. Other nations that have made successful regime transitions have recovered after showing an initial 3 to 4 percent decline in the first 12 months.

Freund noted that although there are many challenges, there are more opportunities.

Lead economist Elena Ianchovichina wrote the World Bank report and stated that expansions in the social measures played out during this period of uncertainty are reasonable to offer protection and assistance to the most vulnerable, as well as maintaining support for the reformation. It is essential that these measures put into place are complimentary to the necessary reforms and are delivered efficiently to those most in need.

The World Bank, when commenting on rising prices of commodities in the MENA region, stated that each nation has felt the impact differently, as determined by their level of dependence on oil and food imports. The difference between domestic and international prices, called the pass-through, has had an effect. Due to the fact that many nations in the MENA region are dependent on the import of food such as oils, sugar and cereals, these countries face the risk of higher import bills, greater inflation, excessive malnutrition and deteriorating fiscal balances should the food prices continue to increase and the governments choose to offer subsidised food.

The security of food has been and will continue to be seen as a key issue for Arab nations, according to Julian Lampietti. Lampiettie is a leading Food Security Expert in the World Bank’s MENA region department. Complacency with regards to this issue is not acceptable, according to Lampietti, as the wheat stocks are lower across the globe and the Arab world continues to import around one third of all the wheat traded in the world. It is possible to reduce the volatility of food prices within the region using logistics and infrastructure investments, according to Lampietti. He noted that certain regional examples are being continually analyzed and indicative of how to manage exposure to spikes in food prices while still ensuring dietary essentials are supplied in a timely matter.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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