Middle East not spared by the crisis

The Near & Middle East (except Turkey) and North Africa have not been spared by the global recession and could lose 3.5 GDP points in 2009 compared to 2008, according to credit insurer Coface, which experts, the recovery in 2010 to be relatively soft. Saudi Arabia, Abu Dhabi, Kuwait, Algeria and Libia Oil producing countries seem to have been hit hardest by the collapse of oil prices, the decline in foreign demand, and the credit crunch, which will undermine the financial performance of companies and banks. But some countries – Saudi Arabia, Abu Dhabi, Kuwait, Algeria and Libya – enjoy an excellent capacity to cope with crisis effects thanks to currency reserves and financial assets accumulated these past years, enabling them to support growth in nonoil economic sectors. The upswing of oil prices since the year began, especially the rebound in May, has brightened the outlook. UAE and Saudi Arabia The United Arab Emirates will slip into recession (down 1.6%). Of all regional countries the three emirates have suffered most, with the crisis affecting not only Abu Dhabi's oil industry but especially Dubai's property and banking sectors. Saudi Arabia will also slip into a mild (1%) recession. The banking sectors in the Gulf monarchies have in general received government support to keep the market liquid. But the quality of their assets could suffer a marked deterioration as a result of the worsening economic conditions, their exposure to the property sector, and a general lack of corporate transparency. Iran Iran seems vulnerable meanwhile, weakened by four years of the populist policies pursued by President Ahmadinejad. Foreign exchange reserves have been relatively low, representing only ten months of imports, and inflation – although currently low virtually everywhere else – exceeds 25%. Israel, Lebanon, Jordan and Egypt Except for Israel, directly affected via the trade channel and expected to slide into a 1.4% recession this year, the crisis has had relatively little effect on the other regional countries. But compared to oil countries they nonetheless remain more vulnerable in view of their severe fiscal imbalances, high debt (particularly Lebanon), and great dependence on foreign capital (particularly Jordan). Their governments thus enjoy little room for manoeuvre to support their economies, which will nonetheless benefit from easing inflation, down from the particularly high levels reached in 2008. Goods and services exports have declined amid the fall of demand from client countries and the slowdown of tourism and Suez Canal traffic (Egypt). Pakistan With Pakistan already mired in a severe economic crisis, the troubles in the north-west province have weakened its position even more. But the IMF released funds to enable it to avert a liquidity crisis and, considering the extent of the difficulties faced, softened the conditions on the loan granted. In addition to the $5.3-billion in aid promised in April by Pakistan's friends, international aid has been mobilised to assist persons displaced from the strife-ridden province. The political instability and the president's weak backing in parliament severely undermine the outlook.