Bright outlook for Middle East and Central Asia

• Author: Elisa Diehl
• Position: IMF Survey Magazine
• Pages: 129-141

Page 129

All groups of countries in the Middle East and Central Asia-oil exporters, emerging markets, and low-income countries-are growing strongly, says the IMF's May 2007 economic outlook for the region, which is expected to achieve GDP growth of more than 6 percent, on average, this year. There are risks to the outlook, including the possibility of slower world growth and a sustained rise in financial market volatility, although the countries in the region are becoming more resilient to potential shocks.

Page 140

Fast-growing region needs to use savings efficiently

At a May 14 press briefing announcing the release of the May 2007 Regional Economic Outlook: Middle East and Central Asia, Mohsin Khan, Director of the IMF department responsible for that region, noted that all country groupings-oil exporters, emerging markets, and low-income countries-have been performing well.

Robust global growth, a favorable international financial environment, continued high prices for oil and other commodities, and sound policies in many countries are underpinning this strong growth. Real GDP growth is expected to remain strong at more than 6 percent on average, with double-digit growth projected in the Caucasus and Central Asian countries (see table).

However, the strong foreign exchange inflows-export receipts, foreign direct investment, and remittances-and rapid demand growth, combined with accommodative monetary policies, are fueling inflation, which is expected to increase to 9 percent this year from 7½ percent last year. The report says the rise is particularly notable in some oil-exporting countries, where the higher inflation is beginning to translate into more appreciated real effective exchange rates, as would be expected in response to increased oil prices.

The oil factor

The Middle East and Central Asia countries have benefited more from the high price of oil than other regions because they hold almost three-fourths of the world's proven oil reserves and account for one-third of world oil production.

Rising prices of other commodities have also benefited the region, which accounts for one-fifth of the world's gas production and boasts the largest aluminum smelter site in the world (United Arab Emirates). In addition, the region is well endowed with cotton (Uzbekistan), copper (Armenia and Georgia), and...