Business confidence shaky in MENA region

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Markit’s global business outlook survey said it expects a rise in business activity over the next 12 months while pointing out that economic expansion and sentiment was better than October’s post-crisis low.

However, hiring intentions looked bleak with only 17% more companies planning to expand over those that did not, down from a gap of 19% in February. Chris Williamson, chief economist at Markit, said: “Businesses globally have scaled back their expectations for business activity, revenues and profits growth compared to earlier in the year, which has in turn led to a deterioration in the employment outlook.”

The expectations for business activity in the euro zone dropped off, while the sentiment in the United States fared much better despite being down 69% earlier in the year.

Global capital spending plans remained unchanged. The investments by US companies are on the rise. However, the spending in the euro zone was seen falling.

The low price pressures provided some relief for companies after a ramp up in costs earlier this year.

MENA

The Middle East and North Africa (MENA) region is going through a period of great changes. In the ‘Arab Spring’ countries, political transition followed by pressing social reforms and an adverse external environment have contributed to macroeconomic instability. These risks, however, were contained during 2011, but with rising unemployment and continued fiscal and external pressures, 2012 will be an equally challenging year.

On the other hand, Middle East oil exporters benefited from high oil prices. Growth in 2011 was concentrated mainly in Gulf Cooperation Council countries and is expected to pick up further in 2012. However, MENA oil importers had to manage higher commodity prices, lower global growth, and negative spillovers from the euro region.

Political transitions in a number of countries created uncertainty that relied on investment and tourism during 2011. Economic activity slowed and unemployment rose in a number of MENA oil-importing countries in 2011. Growth among these countries fell from 4.3% in 2010 to 2.2% in 2011. As the social unrest in Egypt, Syria, and Tunisia led to a large decline in tourist arrivals and investment activity, which, together with higher energy prices and slower global growth, weakened economic activity.

Slowing growth in Europe adversely affected exports from Morocco and Tunisia in late 2011. The returning migrants from Libya reduced remittances into Tunisia. Drought in Morocco and Mauritania, and sanctions on Syria also played a crucial role in the weakened economic activity.

Rising energy prices are likely to increase import bills of most of the oil-import-dependent countries. In 2012, GDP growth is projected to average almost 5% for GCC and MENA region.

The recovery of oil production in Libya is likely to offset the supply decline from Iran. Iraq continues with its capacity expansion plan. Qatar’s hydrocarbon growth is likely to tail off, pending a moratorium on capacity expansion, while Saudi Arabia’s role as swing producer is expected to increase oil production in 2012 to keep global energy demand and supply in balance.

Non-oil GDP growth is expected to rise in majority of countries, to almost 4.5% in 2012. Tensions with Iran could raise oil prices, which is likely to have a positive financial impact on other MENA oil exporters.

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