When it comes to the economy, the hits just keep on coming. In the Middle East and North Africa (MENA), the regional economic trends and global dynamics raise concerns about a potential financial downturn.

That’s unsurprising, given that most of the key underlying metrics — employment, inflation, consumer spending — have not been moving in the right direction. 

In October last year, the World Bank’s MENA economic update forecasted a downturn in economic growth across the region. Factors such as oil production cuts, global financial tightness, and high inflation were the primary contributors to this gloomy forecast. The report highlighted a notable shift from the previous trend, where oil exporters had outpaced importers. 

However, two months into the new year, inflationary pressures persist, with tightening monetary policies and ripple effects of hikes in gas, rents, groceries, and fees, pointing to whether MENA economies are headed to a possible recession. 

“The current global economic landscape remains uncertain, with several geopolitical, financial, and trade factors playing a pivotal role in determining whether a recession is imminent in 2024,” says Damian Hitchen, CEO of Saxo Bank MENA.

Hitchen points out that conditions in Ukraine and the Israel-Palestine conflict pose risks of escalation, with the potential for far-reaching consequences. “The impact on the ongoing fight against inflation is noteworthy, particularly with Russia’s involvement in European oil and gas supplies. The recent shipping challenges in the Red Sea add another layer of complexity, leading to increased shipping costs that can contribute to inflationary pressures.”

“In 2024, inflation is anticipated to display different patterns in various regions,” says Yusuf Mansawala, chief market analyst at CPT Markets. 

According to the International Monetary Fund, global headline inflation will decline to 5.8% in 2024 and 4.4% in 2025. This decrease is attributed to disinflation and steady growth, reducing the likelihood of a severe economic downturn. “Risks to global growth are generally balanced,” says Mansawala.

ENVIRONMENTAL FACTORS 

Meanwhile, trade tensions persist between the West (EU-US) and the Middle East-Asia region, with China’s economic performance likely to have cascading effects on international markets and trade dynamics in 2024. “While there are potential recessionary indicators, the outcome depends on the interplay of these factors,” says Hitchen.

According to Mansawala, it is essential to consider global factors that could cause shockwaves in the Middle East. He cites the economic performance of the US, where the Congressional Budget Office’s estimates range from 1.1% to 3.6% for 2024, with the core PCE price index anticipated to outpace overall estimates, signaling potential inflationary pressures. 

Meanwhile, in the Eurozone, the European Central Bank projects a decline in headline inflation from 5.4% in 2023 to 2.7% in 2024, followed by further decreases in subsequent years, aiming for a long-term stabilization of around 1.9% by 2026.

Vijay Valecha, Chief Investment Officer, Century Financial, anticipates strengthened GDP growth in 2024. The oil GDP is expected to recover at 2.2%, while the non-oil sector is poised for robust growth at 2.9%.

In terms of inflation, there was a notable reduction from 3.7% in 2022 to 2.2% in 2023 in GCC countries, significantly lower than the global rate of 6.1% in the same year. 

“Forecasts for 2024 suggest a marginal increase in the headline inflation rate to 2.4%, primarily driven by higher inflation rates in Bahrain and Oman, while other GCC countries are expected to experience easing inflation,” says Valecha.

CAUSE FOR CONCERN OR USUAL GROWTH PAINS?

Jonathan Ashworth, Global Chief Economist at ACCA, says despite some slowing in the global economy in the final quarter of 2023, a major downturn wasn’t in the offing. The key indicators for the Middle East were above their long-term averages.

The current economic situation is complex due to several factors at play. “The lag effect of higher interest rates further complicates the situation. While interest rate hikes aim to curb inflation, the full impact takes time to materialize,” says Hitchen.

The economic strain may cause people to draw from savings, such as Covid-era savings, before feeling the strain of increased costs for loans, mortgages, and business lines. 

Hitchen says that whether the economy experiences a “hard” or “soft” landing depends on the effectiveness of these measures and the resilience of various sectors.

The housing market in economies such as UAE, Qatar, and Bahrain is experiencing a notable shift as the recession looms. Forecasts suggest that rents could surge by as much as 20% in 2024 for cities like Dubai. 

The Middle East also witnesses a spike in food prices and petrol costs. These inflationary pressures compound concerns concerning the region’s economic stability amidst the looming possibility of recession.

Drawing upon historical data and the track record of resilience portrayed by countries such as UAE, Ummair Butt, Founder and CEO of Direct Debit System, underscores the potential for a soft landing even in the face of economic headwinds. The business-friendly policies implemented by countries such as the UAE are critical in fostering an environment conducive to stability and growth. “We are well positioned to mitigate the effect if it happens.”

Ultimately, the onus lies with policymakers’ responses, which will be crucial in determining the trajectory of inflation and the broader economic outlook. “Policymakers are faced with the challenge of effectively managing the gradual decline of inflation towards the target, adjusting monetary policies, and focusing on fiscal consolidation,” says Mansawala.

“In our view, there will be no recession in 2024,” says Butt. 

According to Ashworth, in the challenging global economic backdrop, the ongoing strength of the US economy has improved the odds that the world can avoid a downturn in 2024, and the closely watched J.P. Morgan Global Composite Purchasing Managers’ Index has pointed to some improvement in global economic activity in recent months. “The latter should prove supportive of the economy of the Middle East, although geopolitics remains a major downside risk for the region.”  

As global economic dynamics continue to evolve, proactive policy measures will be essential in safeguarding against recessionary pressures and fostering resilience in the face of uncertainty. “Vigilance and adaptability in economic policies will be crucial to navigate the challenges and potentially avert a recession in the coming year,” says Hitchen.

Over the past few months, people have spent a lot of time talking about everything they think is likely to go wrong with the economy. Maybe we should take a minute to recognize all the things that have gone right. That’s another story. Watch this space.