An MUFG MENA Economic roundtable suggested that the COVID-19 pandemic, combined with the oil price shock of the first half of 2020, will have a long-term impact on the MENA region as it deals with shaping its ‘New Normal’. However, there is room for hope, tempered with caution, according to MUFG.

Ehsan Khoman, Head of MENA Research and Strategy at MUFG and author of the MENA Economic report discussed during the roundtable, said that “policymakers in the Middle East and North Africa are well aware that they will have to do more,” and confirmed his belief that fiscal stimulus will keep playing a significant role in the recovery.

The initial policy response across the region was led by Central Banks, focusing on liquidity in the financial system alongside direct corporate support, minimizing the economic fallout. To facilitate financing, the UAE launched a US$70 billion Targeted Economic Support Scheme (TESS), which paired with the US$26 billion stimulus provided by the Saudi Arabian Monetary Authority (SAMA). These initiatives led to a sharp rise in lending growth, suggesting that the authorities' efforts to offset the economic fallout of the virus shocks are bearing fruit.

Regardless, MUFG’s forecasts indicate that by the end of 2021, the region will have a level of activity that is well below its pre-pandemic growth trajectory and, in many cases, will still record activity below its 2019 level, with deep recessions expected in 2020 across almost all MENA regional economies. The overall real GDP growth in MENA region is expected to contract in 2020 by -5.6% from +0.2% in 2019. In the GCC, the real GDP growth is expected to fall by -3.9% in 2020 from +0.6% in 2019.

Lockdowns and social distancing measures imposed in response to the pandemic have been far reaching and long, but they continue to ease across the MENA region as authority’s attempt to strike the delicate balance between limiting further damage to their economies, weighed against health risks. As a result, regional governments are cautiously re-opening their economies, but until the pandemic is contained globally, there are certain sectors of the economy that will be slow to recover, such as travel and tourism. History suggests that many consumers will also be reluctant to return to pre-pandemic spending.  As the domestic economies normalize, growth should gradually recover, bolstered by a pick-up in oil output as OPEC+ production restrictions ease.

Source- Press Release