MESOP MIDEAST WATCH WORLDWAR- GRIM GLOBAL OUTLOOK -The Takeaway: Ukraine war worsens Middle East oil gap
21.4.22 Lead: IMF forecast shows widening gap between oil-haves and oil-have-nots
The global economy’s prospects have “worsened significantly” as a result of Russia’s invasion of Ukraine and the resulting “sanctions aimed at pressuring Russia to end hostilities,” according to the IMF’s World Economic Outlook.
The IMF and World Bank Group Spring meetings in Washington this week are addressing the war’s consequences, which are especially acute for emerging markets, coming on the tail of the COVID-19 pandemic. Fallout includes rising food costs and food insecurity, as well as higher energy prices, inflation, interest rates and debt burdens.
The IMF now projects global growth for 2022 and 2023 at 3.6% (down by 0.8 percentage point and 0.2 percentage point, respectively, from its projections of just three months ago).
There is little optimism in its view, as “this forecast assumes that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemic’s health and economic impacts abate over the course of 2022.”
Given its deleterious and long-term effects, the war “demands a peaceful resolution,” writes the IMF.
Middle East dividing line: Those with oil and those without
“The Middle East presents a complex outlook because it contains countries that will be helped most by the fallout of Russia’s invasion and countries that will be hurt the most,” Howard Shatz, senior economist at the RAND Corporation, tells Al-Monitor.
Overall, the IMF’s projected growth rate for the region in 2022 of 4.6% is 0.3% higher than in January, bucking the global trend.
The increase is because oil exporters will reap the energy-price windfall, especially as Russian oil exports are reduced due to Western sanctions and embargoes. Saudi Arabia’s projected growth rate this year, according to the IMF, jumped 2.8 points to 7.6% since January, reflecting higher oil production and prices growth.
For oil importers, especially in the Middle East and North Africa, “rising prices could cause unrest,” says Shatz. “And if countries try to subsidize these products to cushion the blow to the population, this could result in considerable fiscal stress which might cut spending on other items, such as social services or investment projects.”
China as wildcard
“China presents a wildcard in all of this,” adds Shatz. “It is economically underperforming, in part due to its zero COVID policy lockdowns, and it has deep economic ties to the Middle East. As a major importer of oil, it will also face higher oil prices, which will hurt its economy. It will be worth watching to see whether it will maintain, decrease or increase engagement with the Middle East as it reacts to its own economic problems.”
What we’re watching:
Expect those regional economies already described by the World Bank as “fragile and conflict-affected situations,” including Syria, Yemen, Iraq, Libya, Sudan, Lebanon, West Bank and Gaza, to face a high risk of the negative consequences of the Ukraine war, including the potential for social unrest.
Egypt, one of the world’s largest wheat importers with more than half of imports coming from Russia and Ukraine, is “particularly exposed” to the downside consequences of the Ukraine war, says Ranjit Singh, IMF assistant director of Monetary and Capital Markets. The country is experiencing “high external financing needs, rising inflation and limited fiscal space. … Although Egypt has taken measures to stabilize its external accounts in recent weeks, including the devaluation of the Egyptian pound and the 100 basis points hike that the question alludes to, there are still significant concerns that certainly need to be managed.”
Tunisia, according to an IMF report last month, “is facing major structural challenges that result in deep macroeconomic disequilibria, a weak growth in spite of its strong potential, a high unemployment rate, weak investment and social inequality. The impact of the pandemic and the war in Ukraine are now adding to these structural challenges.”