By Alaa Shahine, Bloomberg
Dubai
Political turmoil that started in Tunisia in 2011 and swept across the Arab world will cost the seven most-affected countries about $800bn by the end of next year, according to HSBC Holding.
The unrest that toppled two leaders in Egypt, removed Muammar Gaddafi 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 $2tn from $2.9tn over the four years, Dubai-based economists with HSBC estimated in a report released yesterday.
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 $12bn 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% in the fiscal year that ends in June 2014, the HSBC report said, revising an earlier forecast of a 2.5% growth rate.
The estimate is still below the government’s target of at least 3.5%. Egypt’s budget deficit will narrow to 12% 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 normalisation — 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 Gaddafi.
Libya’s oil-driven economy may expand 0.7% this year, HSBC said, compared with a forecast of 15.9% 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% from 3.4%.
By contrast, Bahrain’s economy, hurt by protests against Sunni rulers in 2011, may expand 3.6% this year, compared with a previous forecast of 3%, HSBC said.
Bahrain’s plight helped Dubai, the second-biggest sheikhdom of the UAE, cement its status as the region’s financial and commercial hub. The UAE’s economy may grow 4.3% this year and 4.6% in 2014, HSBC said, revising its earlier estimate of 4% and 4.1%, respectively.
The expansion, though, will send consumer prices up 4.5% 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,” according to the HSBC finding.