Realities and Prospects

Survey of Economic and Social Developments in the Arab Region

DOWNLOAD

FULL REPORT SUMMARY

Executive Summary

Providing an analysis of the global situation in mid-2020, amidst the COVID-19 pandemic, is a difficult task. The outbreak has exerted tremendous pressure on the global economy, the scale of which is still unclear.

Consequently, the present report sets out two scenarios: a moderate one projecting that the crisis will end and the economy will rebound in the last quarter of 2020; and a pessimistic one in which the crisis will persist throughout 2020 and continue in the first quarter of 2021.

The COVID-19 shock began in the context of a global economic slowdown. Tensions between China and the United States persist, and the United Kingdom has negotiated its exit from the European Union. International trade was negatively impacted by fears of protectionist measures, which also affected supply chains, global demand and manufacturing activities, especially in China, Africa and the Middle East. The COVID-19 pandemic resulted in broad lockdowns that exerted extensive pressure on the global economy, which is expected to contract by at least 3.2 per cent in 2020. The 2021 recovery is conditioned on the effectiveness of the stimulus packages enacted by Governments in response to the COVID-19 crisis and the speed of business recovery.

Advancements in research on COVID-19 vaccines allow for moderate optimism. Consequently, the global gross domestic product (GDP) growth in 2021 is expected to rebound to 4.2 per cent, even in the pessimistic scenario. However, if the packages enacted in 2020 prevent devastating losses for companies, global GDP growth could reach 5.4 per cent in 2021 in the baseline scenario.

● The COVID-19 pandemic will cause a global recession deeper than the 2008 global financial crisis.

● World GDP is projected to contract by 3.2 per cent in 2020, and to recover in 2021 if the necessary conditions are implemented. Otherwise global growth could contract by 4.9 per cent in 2020.

● In 2020, the oil market underwent simultaneous demand and supply shocks that led to a sharp decline in oil prices, which reached its peak on 21 April 2020 when the price of West Texas Intermediate (WTI) oil allocated for delivery in May 2020 plunged below zero.

● The current global crisis will have a deep impact on the Arab region. The fall in global demand for energy will affect Arab oil exporters. Furthermore, decreases in tourism and transport activities will have a deep impact on growth and employment creation in many MICs. The deteriorating economic situation in developed countries will also affect the inflow of investments, remittances and official development assistance (ODA) to Arab least developed and conflict-affected countries.

● The global economic recession, the sharp decline in oil prices, the slowdown of transport and tourism activities, and the lockdown measures imposed in all the Arab countries will plunge the region into a deep recession in 2020. Growth performance could reach -3 per cent. If the situation further deteriorates, GDP contraction could reach -5.7 per cent.

Fiscal positions in Arab countries (2020), Total revenue/GDP

● The 2021 recovery depends to a large extent on the success of the stimulus packages enacted in the region, which exceed $180 billion. It also depends on the economic recovery of partner countries, and the success of their incentive packages.

● The length of the recession depends on factors specific to each country subgroup. GCC countries’ recovery will be shaped by the demand for oil and gas and their prices. Recovery in Arab MICs is contingent on the revival of tourism activities following the pandemic. Recovery in Arab conflict-affected countries depends on the pandemic’s impact on conflict dynamics. In Arab LDCs, recovery hinges on the willingness of donors and expats to channel ODA and remittances.

● The Arab region is facing a significant crisis caused by COVID-19 at a time when it was already suffering from an increasing gender gap and struggling with internal obstacles to redressing social inequalities.

● The burdens of the pandemic are disproportionately borne by women, refugees and IDPs, and migrant workers.

The region has a 40 per cent gender gap, which is the highest globally. Poverty rates are expected to rise by 3.2 percentage points in 2020 along with an increase in unemployment by 1.2 percentage points.

● Around 31.4 per cent of the Arab workforce is at economic risk because of the crisis, which represents 39.8 million workers. The female labour participation rate remains the lowest worldwide at 20.53 per cent.

● Debt levels have increased significantly in the Arab region since 2008. Overall, average debt to GDP increased from 26 per cent in 2008 to 45 per cent in 2018.

● Since 2011, public debt in the Arab region has grown more rapidly than the economy. A situation that will be exacerbated by the adverse impact of the COVID-19 pandemic.

● This increase in debt is caused by the following: an inadequate fiscal reaction function, high interest rate and growth differential; and the low impact of government expenditure on productivity and growth.

To maintain debt levels below 75 per cent, the region should maintain its primary balance at around zero, or reduce its interest rate and growth differential. Arab Governments also need to reform their fiscal policy and enhance the growth impact of their expenditure.