Washington - A steep decline in oil prices has severely impacted Middle Eastern economies, with growth for the region projected to fall from 6 per cent in 2008 to 2.5 per cent in 2009, the International Monetary Fund said Wednesday. Amid the widening credit crunch, the region's property and equity markets have been strained, export growth contracted, workers' remittances declined and even tourism revenues - in Egypt, Jordan and Lebanon - have fallen, the IMF said in its updated World Economic Outlook.
But the IMF said massive government spending, which is possible because of vast oil revenues taken in past years, was helping to spare the region from a recession that gripped most other parts of the world.
"The governments have in our view reacted very forcefully," said IMF economist Jorg Decressin. That has helped to "soften the decline" from falling exports and oil prices.
Among oil-producing countries, the United Arab Emirates (UAE) is expected to experience the sharpest slowdown. As a global financial centre, the UAE will face the backlash of a worldwide contraction and a decrease in mergers and acquisitions.
Qatar, however, is projected to grow by 18 per cent in 2009 - up from 16.5 per cent last year - as it doubles its production of natural gas.
Among the non-energy producing countries, Lebanon is set to experience a steep slowdown largely because of the decline in remittances from the Gulf, the IMF said.
However, the report also said that inflation will reduce quickly for the entire region because of lower commodity prices, rents and economic activity.
Among the considerable downside risks, the IMF cited the ongoing recession prompting oil exporters to cut spending on infrastructure and investments in oil production, which would in turn dampen the growth prospects for the entire region.
A prolonged recession would also imply weaker exports and tourism and lower remittances for countries in the region.
Currently, increased government spending in Kuwait, Libya, Oman, Qatar and Saudi Arabia are filling the gaps created by the drop in private sector activity. Another buffer has been created by the central banks - in Egypt, Jordan, Kuwait, Saudi Arabia and UAE - as they have cut interest rates and provided liquidity.
Governments have also moved swiftly to prevent a banking crisis, the IMF said, by injecting capital into the banks facing a shortage of funds.
The report said that countries with pegged exchange rates - Bahrain, Kuwait, Saudi Arabia, Libya, Oman, Qatar, UAE and Syria - have gained from the gradually increasing credit flow in the United States.
