Arab Unrest to Cost $800 Billion as U.A.E. Benefits, HSBC Says
Political turmoil that started in Tunisia in 2011 and swept across the Arab world will cost the seven most-affected countries about $800 billion by the end of next year, according to HSBC Holdings Plc.
The unrest that toppled two leaders in Egypt, removed Muammar Qaddafi from power in Libya, unsettled Bahrain’s monarchy and plunged Syria into civil war will lower cumulative economic output in the nations to just above $2 trillion from $2.9 trillion over the four years, Dubai-based economists with HSBC estimated in a report released today. The other two countries included in the study are Jordan and Lebanon.
“Such a long period of sub-trend growth offers scope for a period of more rapid expansion as troubled economies bounce back,” Simon Williams and Liz Martins said in the report. “But the capacity of policy makers to deliver a meaningful turnaround in fortunes remains constrained” as public finances deteriorate, they said.
The economic slowdown has widened the wealth gap between the seven countries and Gulf Arab states, where a windfall from energy exports helped stimulate growth and allowed Saudi Arabia, the United Arab Emirates and Qatar to extend aid to countries like Egypt and Tunisia engulfed by Arab Spring protests.
Egypt has received $12 billion in aid pledges from Gulf countries to support dwindling foreign reserves and shore up public finances since the military’s ouster of President Mohamed Mursi in July. The funds will help the economy expand 3 percent in the fiscal year that ends in June 2014, HSBC said, revising an earlier forecast of a 2.5 percent growth rate.
The estimate is still below the government’s target of at least 3.5 percent. Egypt’s budget deficit will narrow to 12 percent of gross domestic product this fiscal year, according to HSBC forecasts, two percentage points higher than the government’s estimates.
“A return to pre-2011 levels of economic activity will require full political normalization -- which will likely be a lengthy and challenging process,” Williams and Martins said in their note when discussing Egypt’s prospects for recovery. “A marked pick-up in militant activity in Sinai, and reports of sporadic violence in Cairo and Alexandria, also suggest that maintaining security may prove challenging despite the widespread clampdown on opposition groups.”
More than 50 Islamists were killed during weekend violence across Egypt as Mursi’s supporters took to the streets to denounce the military-backed government that replaced him, while militant attacks killed almost a dozen members of the security forces over the last two days in Sinai and elsewhere.
Egypt is struggling to recover from the chaos that accompanied the 2011 uprising that ended Hosni Mubarak’s three-decade autocratic rule. The revolt was followed by the overthrow of Libya’s long-time leader Qaddafi.
Libya’s oil-driven economy may expand 0.7 percent this year, HSBC said, compared with a forecast of 15.9 percent three months ago, after protests and strikes cut crude exports. The London-based bank also cut Morocco’s GDP growth forecast this year to 2.8 percent from 3.4 percent.
By contrast, Bahrain’s economy, hurt by protests against Sunni rulers in 2011, may expand 3.6 percent this year, compared with a previous forecast of 3 percent, HSBC said.
Bahrain’s plight helped Dubai, the second-biggest sheikhdom of the U.A.E., cement its status as the region’s financial and commercial hub. The U.A.E.’s economy may grow 4.3 percent this year and 4.6 percent in 2014, HSBC said, revising its earlier estimate of 4 percent and 4.1 percent respectively.
The expansion, though, will send consumer prices up 4.5 percent next year, the highest level since 2008, one year before a real-estate crash brought Dubai to the brink of default. The expected acceleration in inflation will help reveal “what lessons policy makers have drawn from the boom-and-bust cycle,” HSBC said.
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