'Mena economies to witness deep recession in second half'

MANAMA: Economies in the GCC region will see contraction in overall real GDP growth of 3.9 per cent in 2020 from +0.6pc in the previous year, according to a report by Mitsubishi UFJ Financial Group (MUFG).

Nearly all economies in the Mena region will witness deep recessions with contraction in overall real GDP growth in 2020 by 5.6pc from +0.2pc in 2019, it said in a report on the region’s economies.

Lockdowns and social distancing measures continue to ease across the Mena region as authorities attempt to strike the delicate balance between limiting further damage to their economies weighed against health risks.

The reopening of economies are coming at a time when the number of Covid-19 infections across the region (and globally) are still rising.

They are cognisant they might have to impose new restrictions at any time.

The epidemiological course of Covid-19 remains ever apparent, with various clusters likely to keep popping up, highlighting that a further rise in infections can’t be ruled out until the pandemic is contained globally by a vaccine or, like Spanish Flu, by dying out naturally.

“Our base case assumes that we continue on a path of tentative and occasionally interrupted reopening in the Mena region, rather than seeing further iterative waves of the pandemic that forces a return to lockdowns,” the MUFG report said.

“However, that does not mean there will be no lingering impact on consumer behaviour from the pandemic or no permanent economic damage from the measures put in place to contain it. Far from it. Our forecasts point to a region which, by end 2021, has a level of activity that is not just well below its pre-pandemic growth trajectory but, in many cases, still below its end 2019 level.

“For buoyant financial markets seemingly focused on growth rates, it can only be a matter of time before the degree of permanent damage reflected in a newer lower level of activity starts to matter,” it added.

Despite the phased easing in lockdown restrictions, the region is by no means out of the woods, but these economies have passed the nadir in economic contraction.

The conversation is beginning about what the next normal could entail and how sharply its contours will diverge from those that previously shaped the region, but there currently remain more questions than answers.

While the region is weathering the storm, the near-term economic outlook remains challenged.

Most immediately, the lockdown imposed in response to the pandemic has been far reaching and long.

As the domestic economy normalises, growth should recover, bolstered by a pick-up in oil output as Opec+ production restrictions ease.

“At about 4.5pc, however, the recovery will leave overall output 0.8ppt smaller at the end of 2021 than at the start of 2020. Looking ahead, there is much about the pandemic that we can’t be sure of. Iterative virus waves certainly cannot be ruled out,” the MUFG report said.

Though, one actuality is clear – debt ratios will be higher – for individuals, corporates and especially for governments as well as government related entities.

In the absence of strong growth, there are only so many ways the latter can be addressed: austerity, default, inflation or taxation.

Across the Mena region, we are likely to see some mixture of all of these in some scope, magnitude and in various time frames, the report said.

Source: http://www.gdnonline.com/Details/837618/Mena-economies-to-witness-deep-recession-in-second-half