Middle East economic growth will slow down in 2024

Despite facing uncertainties, IMF Managing Director Kristalina Georgieva stated on Sunday that the global economy has shown surprising resilience. However, she cautioned about the potential broader impact on regional economies due to the ongoing conflict in Gaza.

In its regional economic report last month, the IMF revised down its GDP growth forecast for the Middle East and North Africa to 2.9% this year, attributing the adjustment to factors such as short-term oil production cuts and the conflict in Gaza. Despite this, the IMF raised its global economic growth forecast, citing improved outlooks for the United States and China, driven by a faster-than-expected easing of inflation.

Middle East tourism experienced a decline

Georgieva noted that economies near Israel and the Palestinian territories experienced a decline in tourism revenues due to the conflict, and global freight costs were affected by attacks in the Red Sea. These challenges compound the recovery efforts of economies still grappling with previous shocks.

In the Red Sea, the Iran-aligned Houthis in Yemen have targeted commercial vessels with drones and missiles since mid-November, claiming solidarity with Palestinians amid Israeli strikes in Gaza. While they argue their attacks are in support, the US and its allies view them as indiscriminate and a threat to global trade. Consequently, some global shippers have redirected traffic to the Cape of Good Hope, opting for a longer route than through Egypt’s Suez Canal.

Egypt’s Finance Minister Mohamed Maait mentioned that the impact of the Suez Canal traffic diversion on revenues could be partially absorbed due to strong growth in the period preceding the events.

Cutting energy subsidies could result in savings

The IMF is set to release a paper revealing that the discontinuation of energy subsidies could result in savings of $336 billion in the Middle East, an amount equivalent to the combined economies of Iraq and Libya, according to Georgieva.

She emphasized that eliminating regressive energy subsidies not only has substantial economic benefits but also serves to discourage pollution and contributes to enhancing social spending. In 2022, fossil fuel subsidies accounted for 19% of the GDP in the Middle East and North Africa (MENA) region, as reported by the IMF. The organization has proposed a gradual phasing out of energy subsidies for the economies in the region, including those dependent on oil exports, and has put forward targeted support as a viable alternative.

AI will become a “tsunami”

There is a notable emphasis on advanced technology, particularly Artificial Intelligence (AI). Georgieva highlighted the global significance of AI, stating that 40% of jobs worldwide are exposed to AI, and countries lacking the necessary infrastructure and skilled workforce for investment could risk falling behind.