Prospects Blog: Economic challenges a year after the Arab Spring

Almost a year to the start of the “Arab Spring”, political unrest and political economy issues have been key determinants of economic policy and prospects for growth in a large number of countries. Though the longer term prospective benefits of developments since spring are not widely disputed (at least I look upon them favorably for the medium term), since the start of 2011 the region has faced unprecedented uncertainty and economic pressures from domestic sources.

And just as activity measures and other indicators for the “transitioning economies” begin to show some signs of stabilization, the recent souring of the international environment, focused on the sovereign debt crisis in Europe – the primary trade and financial partner for the Middle East and North Africa –suggests an escalation in overall pressures for the region through 2012, in terms of goods exports, tourism receipts, migrant remittances and other income flows, which had already been dampened in 2011 (See figure 1).

Growth for developing MENA is likely to have registered 1.7 percent in 2011, down markedly from the 3.6 percent pace of the year preceding. And GDP gains are likely to remain subdued in 2012 (2.3 percent), as deterioration of external conditions make recovery more difficult, and the availability of external finance for covering escalating domestic funding requirements for the oil importing economies of the Maghreb may not be readily forthcoming. Recovery gains some traction by 2013 (3.2 percent), as FDI and investment in the diversified economies picks up, traditional revenue streams begin to normalize, GCC funding comes to support those economies transitioning to new economic systems, and conflicts in countries with civil unrest come more gradually to closure. Downside risks to this outlook abound however, given the region’s external vulnerabilities and depletion in the stockpile of policy “ammunition” needed to stave off the adverse effects of another round of global weakness.