By Andy Sambidge
UPDATE 1: Stress in banking and financial sectors seen as obstacles to recovery.
Economic prospects for the the Middle East and North Africa region have improved this year with the resumption of capital inflows and rising crude oil prices, the International Monetary Fund (IMF) said on Tuesday.
But it added that stress in the banking and financial sectors along with slow credit activity were continuing to weigh on the rebound.
The IMF said in its latest Regional Economic Outlook (REO) that the region's gross domestic product should expand by 4.2 percent this year after 2.3 percent growth in 2009, but still short of 5.7 percent seen ahead of the 2008 global credit crunch. It forecast 4.6 percent growth in 2011.
“The outlook for the region has improved considerably from 2009. Growth is gathering momentum in 2010, helped by the pickup in capital inflows and resurgence in domestic consumption,” said IMF Middle East and Central Asia director Masood Ahmed.
“However, this positive perspective is clouded by some stress in the banking system and lethargic credit activity across the region,” he said.
MENA oil exporters were hit hard in 2009, it added, and their combined current account surplus fell to $53bn in 2009, after having reached $362bn in 2008. Oil GDP for these countries contracted by 4.7 percent, triggered by plummeting oil prices.
But the report sees a "strong recovery" in the coming year, aided by an increase in capital inflows and crude oil prices.
Higher oil prices and output are projected to boost the current account surplus to $140bn and oil-GDP growth to 4.3 percent.
Non-oil sector activity, supported by sustained fiscal stimulus in some countries, is also forecast to grow by 4.1 percent, it added.
“The region’s oil exporters still face challenges in their banking systems, however, where credit to the private sector remains sluggish and losses on nonperforming loans have yet to be fully recognized”, Ahmed said.
Separately, Ahmed said on Tuesday that Dubai’s economy would contract by about 0.5 percent this year.
The economy of Abu Dhabi, the capital of the UAE, will grow 3.7 percent in 2010, he said in a conference in Dubai.