MENA Economic Update, October 2024: Growth in the Middle East and North Africa

Table of Contents

• Acknowledgements 9
• Abbreviations 10
• Foreword 11
• CHAPTER I. OVERVIEW 13
• A fragile growth 13
• The economic consequences of the conflict centered in Gaza 14
• The long shadows of conflicts in MENA 14
• Prospects for a more prosperous region 14
• CHAPTER II. MACROECONOMIC OUTLOOK 16
• Global economic context 16
• Global economic growth: The global economy is stabilizing while the outlook remains subdued 16
• Global inflation and interest rates: Easing inflation with disinflation progressing slower than expected 17
• Food price inflation: Prices of agricultural commodities decline but remain above pre-pandemic levels through 2025 18
• Oil production and global demand: Oil price fluctuations through 2024 19
• Growth forecasts and macroeconomic trends in the MENA region 20
• Growth forecasts: Subdued growth in 2024 with important disparities within the region 20
• Real GDP per capita: Modest improvements in standards of living amidst high uncertainty 22
• Poverty in MENA: A troubling increase across the region 24
• Current account and fiscal account balances: Hydrocarbons shape oil exporters’ balances, while developing oil importers battle twin deficits 27
• Inflation in MENA: Inflation shows overall easing, but high levels persist in some countries 28
• Forecast revisions: Widespread growth downgrades with sharpest declines in fragile and conflict-affected situations 30
• Mounting uncertainty in the MENA region 32
• CHAPTER III. UPDATE ON THE CONFLICT CENTERED IN GAZA 34
• Effects on the West Bank and Gaza 34
• Effects of the conflict on MENA and the global economy 36
• CHAPTER IV. THE COST OF CONFLICT IN MENA 39
• A significant rise in frequency and severity of conflicts in MENA 39
• The ripple effects of conflicts on afflicted countries 41
• Conflicts lead to human capital losses, increased food insecurity, supply chain disruptions, and lower investment 44
• Peace is an essential prerequisite for economic development 46
• CHAPTER V. DRIVING GROWTH IN THE MIDDLE EAST AND NORTH AFRICA 48
• Income per capita in the MENA region between 1970 and 2019 48
• Development accounting for MENA 51
• Increasing employment rates and enhancing aggregate productivity are critical to boosting growth in the region 55
• Closing the gender employment gap would increase income per capita 60
• Transforming the role and the size of the state to improve the allocation of resources 63
• Tapping into the frontier of technology through more international trade 66
• Data transparency for more growth 68
• References 70
• Appendix 75
• Figure II.1. Contributions to global growth. 17
• Figure II.2. Inflation. 18
• Figure II.3. Index of global price of important agricultural commodities from January 2020 to September 2024. 18
• Figure II.4. Hydrocarbon spot prices and futures. 19
• Figure II.5. Real GDP growth since 2020. 20
• Figure II.6. Index of real GDP per capita levels in 2019–2024. 24
• Figure II.7. Regional poverty estimates. 25
• Figure II.8. Poverty in MENA. 25
• Figure II.9. Inflation in MENA by country groupings of exchange rate regimes (y/y inflation August 2024, August 2023) 29
• Figure II.10. Private sector forecasts revisions of 2024 real GDP growth since January 2023 31
• Figure II.11. Share and magnitude of private sector forecast downgrades for 2024 real GDP growth since January 2023 among MENA countries and other EMDEs. 32
• Figure II.12. Private sector forecast dispersion as a proxy for uncertainty. 33
• Figure III.1. Energy and financial markets. 38
• Figure III.2. Shipping disruption. 38
• Figure IV.1. Conflicts and fatalities since 1990, by region. 40
• Figure IV.2. The share of countries in conflict by region since 1990. 40
• Figure IV.3. Incidence of entry into conflicts in MENA by income group. 41
• Figure IV.4. Counterfactual estimates of income per capita relative to the frontier for MENA countries in conflict. 42
• Figure IV.5. Counterfactual estimates of income per capita relative to the frontier around selected conflict events. 43
• Figure IV.6. Composite risk rating in MENA and share of businesses facing political instability. 45
• Figure V.1. Income per capita in MENA income groups, 1970–2019. 49
• Figure V.2. Income per capita in MENA, EMDEs, and advanced economies, 1970–2019. 49
• Figure V.3. In the past 50 years, income per capita in MENA oil importers has more than tripled… 50
• Figure V.4. …while income per capita in the rest of MENA developing economies has lagged further behind the frontier. 50
• Figure V.5. Among oil importers, growth in income per capita has dramatically slowed; among oil exporters, growth is highly volatile. 51
• Figure V.6. In MENA oil exporters, GDP per capita varies with the price of oil, but consumption per capita is less volatile. 54
• Figure V.7. The difference between income per capita and consumption per capita, both relative to the frontier economy, is not quantitatively significant. 54
• Figure V.8. Low employment-to-population ratios and low aggregate productivity together explain most of the distance in standards of living in MENA from the frontier. 58
• Figure V.9. The Arab Republic of Egypt exhibits the 3rd lowest capital-output ratio among 180 economies. 59
• Figure V.10. MENA developing economies exhibit the lowest employment-to-population ratios when compared to income peers. 59
• Figure V.11. The productivity measure from the accounting exercise (TFP residual) for most MENA countries is significantly above average when compared to productivity estimates from micro-data. 59
• Figure V.12. Employment rates in the region have not kept pace with gains in years of schooling in the past 50 years. 61
• Figure V.13. MENA countries exhibit some of the largest gaps between men and women in observed rates of labor force participation. 61
• Figure V.14. Capital-skill complementarities could amplify the gains from closing gender employment gaps as workers in MENA continue to acquire schooling. 62
• Figure V.15. The public sector in MENA employs a disproportionate share of both men and women. 64
• Figure V.16. MENA underperforms every other region in accountability. 65
• Figure V.17. The size of the public sector in some developing economies in MENA might be too large relative to the level of efficiency of public goods. 65
• Figure V.18. Countries in MENA produce relatively few scientific articles per capita. 67
• Figure V.19. The knowledge generated in MENA has less impact in terms of citations compared to countries of similar size. 67
• Figure V.20. The novelty of the knowledge produced in Saudi Arabia took off in the last 15 years, but it still very far away from the frontier (frontier economy = 1). 67
• Figure V.21. Most MENA economies are below the median in an index of openness to non-oil exports, which points to potential outward barriers. 68
• Figure A1. Propensity to consume in MENA oil importing countries and the frontier 1950–2019. 75
• Figure A2. Propensity to consume in MENA developing oil exporters and the frontier, 1950–2019. 75
• Figure A3. Propensity to consume in GCC countries and the frontier, 1950–2019. 76
• Figure A4. Index of Years of schooling relative to the frontier, 2017. 77
• Table II.1. 2024 real GDP forecasts by editions of the MENA Economic Update. 22
• Table II.2. Actual and projected real GDP growth, real GDP per capita growth, current account balance, and fiscal account balance in the Middle East and North Africa, by economy, 2022–25. 23
• Table BII.1. Availability and access to household budget surveys at the World Bank circa 2013 and 2022 years. 26
• Table II.3. Inflation in the Middle East and North Africa, by economy, 2022–2025. 29
• Table BIV.1.1. Selected conflict episodes included in the analysis. 44
• Table V.1. Breaking down income per capita for the Middle East and North Africa (values relative to the frontier). 55
• Table V.2. Breaking down income per capita for the Middle East and North Africa, adjusted by the share of natural resources rents (values relative to the frontier) 56
• Table V.3. Breaking down consumption per capita for the Middle East and North Africa countries (values relative to the frontier). 57
• Table A1. Raw values for the development accounting exercise for the MENA region and the United States. 76
• Table A2. Total natural resources rents (as a percent of GDP) for the MENA countries and the United States, 2017 77
• Box II.1. Poverty data limitations in the MENA region. 26
• Box IV.1. Methodology used to construct counterfactual scenarios in the absence of conflict. 43
• Box IV.2 The paradox of Europe’s extraordinary recovery following World War II. 47
• Box V.1. Development accounting. 52
• Box V.2. The rise in female labor force participation in Saudi Arabia. 62