Trade wars, oil price volatility, the risk of a disorderly Brexit and rising social unrest — and in the short term, a massive economic contraction in Iran as it buckles under heavy US sanctions — are the biggest factors shaping the region’s outlook, according to the IMF.
The outlook for the MCD region (Middle East and Central Asia) is driven by a large contraction in Iran in the short-term followed by a rebound in 2020. The risks around the forecast are skewed to the downside and are highly dependent on global factors. If the political tensions and rehabilitation of Iran could be achieved, then the high level of state disruption that the various factions undertake might reduce. The problem with the thinking that an Iran Spring could materialise, is that aside from the politicians, corruption is on an endemic scale, commercial entities controlling prices and evading taxes, making it extraordinarily hard to prise the militias away from the money trough. Also, these actors like the status quo of disorder but there is a strong belief that they are on a political precipice.
The IMF expects Iran to have a fiscal deficit of 4.5% in 2019 and 5.1% in 2020, and projects its growth to contract by 9.5% this year. With a country of 80 million and third-largest OPEC producer Iran has seen its currency ruined and inflation approach 40% after being hit by wide-ranging sanctions following the Trump administration’s withdrawal from the Iranian nuclear deal. The sanctions have slashed Iran’s crude exports by about 80%, according to Reuters estimates.
Broader international factors are also impacting the region’s growth, the report said. Oil prices remain depressed, with crude oil trading at between $58 and $65 per barrel for the last three months, there was for a brief spike following attacks on KSA largest oil facilities in mid-September.
Meanwhile, high debt, low employment and inadequate governance across the region are contributing to rising social unrest as citizens demand more from their leaders. Massive popular protests are gripping Lebanon and Iraq and have taken place to varying degrees of intensity in Egypt, Algeria, Jordan and Sudan in response to higher taxes, a lack of jobs and basic public services, corruption and abuses of power. Despite all that the region has been subjected to, economies are still growing at around 3.6%.
Unemployment in Egypt recently hit its lowest in 30 years, reported at 7.5% in the second quarter of 2019 compared to 9.9% the year before. Still, discontent in the Arab world’s most populous country is widespread: more than 2,000 people have been arrested following short-lived anti-government protests in September over the soaring prices and subsidy cuts that characterise the Egyptian government’s austerity measures – the very measures being praised by the IMF.
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