Survey of economic and social developments in the Arab region 2022-2023

Key messages

After the tumultuous 2020–2022 period caused by the COVID-19 pandemic, the war in Ukraine and the great comeback of high inflation to the developed economies, 2023 brought a moderately optimistic outlook with slowly moderating inflation, decreases in commodity prices and the successful avoidance of crisis in European industries.

This has had, however, significant costs for middleincome economies and least developed countries. Interest rate hikes increased the cost of capital and triggered outflows to high-income economies. A deep reform of the international financial architecture is needed to distribute costs and benefits more evenly.

A food crisis was averted with the Black Sea Grain Export Initiative and higher-than-usual yields around the world. The El Niño-Southern Oscillation cycle, however, could bring unprecedented natural disasters and the return of high global food prices.

The resilience of advanced economies to a sudden halt in the flow of hydrocarbon exports from the Russian Federation, achieved through firm policy actions, behavioural changes and energy conservation measures, shows that the world is becoming increasingly independent from oil and gas. Prices are expected to decrease in the medium to long run, which calls for action by Arab oil exporters to accelerate the development of new growth models.

The global economic outlook for 2024 is moderately optimistic given the recovery of high-income and developed countries from the COVID-19 shock and the repercussions of the conflict between the Russian Federation and Ukraine. Growth in global output is projected to remain subdued in 2023 and 2024 at 2.3 and 2.5 per cent, respectively, significantly below the midterm average of 3.1 per cent.

Commodity price inflation seems to be contained in developed countries while developing economies, are struggling with high interest rates, capital flight to developed countries and high borrowing costs. Globally, the consumer price index (CPI) is expected to reach 7.7 per cent in 2023 and 4.9 per cent in 2024, well above the medium-term average of 3.1 per cent.

The surge in interest rates in the developed economies will attract investment, leading to the strengthening of the dollar, euro and yen. The first half of 2023 saw continued hikes in interest rates by the Federal Reserve in the United States, before it was officially “paused” in June 2023. In Europe, the European Central Bank hiked interest rates by 25 basis points in June, but it is expected to end its rate hikes as inflation slows.

Figure 1.1.a Interest rates in dollars (percentage per year)

Figure 1.1.b . Interest rates in euros (percentage per year)

Following a tumultuous 2022, 2023 brought a stabilization in oil prices on the international market, and a slow but steady decline from about $80 per barrel in January to $75 in June. The price has since increased to around $90 per barrel in September owing mostly to production cuts in Saudi Arabia. The price is expected to stay at this level in 2024 and 2025 against global monetary tightening that curbs demand, the slower-than-expected recovery of China, an uncertain geopolitical situation and the development of climate policy.

After the fall in consumption in 2022, induced by unprecedented consumption cuts in Europe, Eurasia and the Pacific, the demand for gas is expected to remain flat in 2023. On the supply side, global gas production fell by 0.3 per cent in 2022 and is expected to further decrease by 1 per cent in 2023, with additional production in North America and the Middle East not able to fully counteract the fall in the supply from the Russian Federation.

Figure 1.3 Changes in global gas production by region, 2022-2025 (billions of cubic metres)

Key messages

Unemployment rates are expected to remain elevated in the region at around 11.6 per cent in 2023 and 11.5 per cent in 2024.

According to the 2023 Global Gender Gap Index, the Arab region’s average score remains static. It has the world’s most significant disparities in gender equality.

Poverty is projected to decline sluggishly in the Arab region over the coming years, reaching 32.7 per cent by 2025. In middle-income countries, poverty rates are expected to resume a downward trend, declining from 25.1 per cent in 2022 to an estimated 23.8 per cent by 2025. In the least developed and conflictaffected countries, poverty rates are expected to increase from 48.9 per cent in 2023 to 49 per cent from 2024 to 2025. In the GCC subregion, poverty is projected to decline from 9.6 per cent in 2023 to 9.1 per cent in 2025.

Striking gender disparities persist in labour force participation. While female labour force participation is estimated to be as low as 19.88 per cent, compared to the global average of 47.15 per cent, male labour force participation is around 70.38 per cent, close to the global average of 72.36 per cent.

One third of the region’s population – 33 per cent – falls under the ESCWA poverty threshold, which is comparable to national poverty lines. The share is expected to decline sluggishly to 32.7 per cent by 2025. Arab middle-income countries could see their poverty rates gradually recovering from their height during the pandemic years, while the least developed and conflict-affected countries, could witness an increase in poverty rates.

The Arab region continues to have the lowest global gender gap score among all world regions, at 0.62, implying a 0.38-point gap in 2023. This score indicates deep-rooted challenges, including sociocultural norms, policy barriers and labour market issues. The estimated time to bridge the gap is over 150 years.

Figure 3.1 Global Gender Gap Index scores by region, 2023

Striking gender disparities persist in labour force participation. While female labour force participation is estimated to be as low as 19.88 per cent, compared to the global average of 47.15 per cent, male labour force participation is around 70.38 per cent, close to the global average of 72.36 per cent.

Figure 3.2 Female and male labour force participation rates, regional averages, 2023

The Arab region is anticipated to continue facing a high unemployment rate, with projections indicating a persistently elevated level. The overall regional rate is expected to be 11.6 per cent in 2023, among the highest rates globally. It is projected to decrease slightly to 11.5 per cent in 2024 (table 3.3). The conflict-affected and least developed countries face significant challenges in generating sufficient employment opportunities, resulting in a high unemployment rate while Middle-income countries demonstrate comparatively better performance on unemployment. The GCC subregion exhibits the lowest unemployment rates in the region.

Key messages

Inflation in Arab countries is partly imported due to exogenous factors, and partly endogenous, and has generated currency crises in some cases.

Six Arab countries had high inflation rates in the past few years, namely, Egypt, Lebanon, the Sudan, the Syrian Arab Republic, Tunisia and Yemen.

Strengthening the independence of central banks is essential to enhancing the credibility of monetary policies.

Coordinating different policies, including fiscal and monetary policies, is necessary during disinflation.

Based on variance decomposition, there are three main sources of inflation in the six Arab countries with high inflation rates: government expenditure, the money supply and nominal effective exchange rates (NEER).

Inflation is partly imported and partly endogenous, and has generated severe currency crises in some countries, such as Lebanon and the Syrian Arab Republic. Even though many countries in the Arab region have managed to keep inflation rates at low to moderate levels, six countries have recorded high rates in the past few years, namely, Egypt, Lebanon, the Sudan, the Syrian Arab Republic, Tunisia and Yemen.

For the six Arab countries with high inflation rates, the main sources of inflation are government expenditure, money supply and the nominal effective exchange rate (NEER). Given the persistence of energy subsidies in some countries, the impact of fluctuations in energy prices was limited. Also, a certain inflation inertia is evident, where the current price level depends on the price level of the previous period, indicating a high degree of downward price stickiness.

There is a positive relationship between inflation and poverty levels by country, based on the average values of inflation and the poverty ratio over a recent period, in cross-country data.

Inflation may affect the size of the informal sector, where prices increase at a moderate pace compared to those in the formal sector. There is a positive correlation between the size of the informal sector and the level of inflation in cross-country data.

The sacrifice ratio measures the percentage of output (or GDP) lost for each 1 per cent reduction in inflation. A lower sacrifice ratio means that the economy can reduce inflation with less cost in terms of output and employment. Estimates of the sacrifice ratio show that the cost of disinflation policy in the three countries studied ranges from 0.35 to 2.43. Overall, the cost of disinflation is very low in Egypt and Morocco but relatively high in Tunisia.