Russia-Ukraine war propels global downturn

This is going to be a terrible year for the global economy.

The World Bank Global Economic Outlook, released last week, foresees a tilt toward recession, driven in part by the Ukraine war and a related downturn in the US and Europe, which are projected to be drags on, rather than engines of, growth. 

Growth forecasts (by the numbers): 

  • Global: 2.9% (2022), 1.7% (2023, downgraded from 3.0%), 2.7% (2024).
  • US: 1.9% (2022), 0.5 % (2023), 1.6% (2024).
  • Europe: 3.3% (2022), 0.0 % (2023), 1.6% (2024).
  • Russia: -3.5% (2022), -3.3% (2023), 1.6% (2024). 
  • China: 2.7% (2022), 4.3% (2023), 5.0% (2024). 
  • MENA: 5.7% (2022), 3.5% (2023), 2.7% (2024). 

While China and the Middle East and North Africa (MENA) fare better than the West in the bank’s score, the overall outlook is glum, or we should say more glum than just six months ago. David Malpass, the World Bank president, said that the coming year will be “particularly devastating” for the poorest countries, including those in the Middle East, burdened by the lingering effects of the COVID-19 pandemic, as well as inflation, debt, and energy and food supply disruptions.

In addition, Western investment and development funds usually slotted for poor countries are being siphoned off to support Ukraine, which will likely also get the lion’s share of assistance when the war ends. 

While Middle East oil producers should muddle through, coming off a boom year in 2022, the region’s fragile states and economies — including Lebanon, Tunisia, Jordan — and those burdened by conflict — including Syria, Yemen, Libya, as well as the West Bank and Gaza — may edge toward crisis or even collapse. 

Five economic trends we are tracking for 2023, which you may be missing, if you’re not reading Al-Monitor Pro: 

  • Saudi Arabia moves into metals: The kingdom’s growth projections took a hit, from a robust 8.7% last year, to a projected 3.7% in 2023 and 2.3% in 2024, according to the bank, because of the deceleration in the kingdom’s major trading partners, “new oil production cuts, and lagged effects of domestic monetary policy tightening.” There are good signs in religious tourism, the government’s capital spending, and in mining and metals, especially copper, where Riyadh expects an “enormous rise in copper demand as a key conductor metal for renewable energy.” Afshin Molavi has the scoop for Al-Monitor Pro here
  • Iran’s coming currency crisis: The World Bank revised down projected growth to 2.2% this year and 1.9% in 2024, the result of slower growth in trading partners and competition from discounted Russian oil, as well as a decline in domestic demand because of high inflation, unless there is a turnaround on prospects for the nuclear deal. Bijan Khajehpour has the analysis in PRO on the likely coming currency crisis in Iran
  • Egypt banks on the Suez Canal. Egypt’s growth rate is also projected to fall, from 6.6% in 2022 to 4.5% this year and 4.8% in 2024, in part the result of continued food and energy crisis as a result of the Ukraine war. Cairo has been proactive, however, in pressing ahead with reforms, agreeing with the IMF this month on a $3 billion financial support package, including a “flexible exchange rate regime” and a reduced role for the military in state-owned enterprises. Adam Lucente has the report here. And Egypt is doubling down on increased revenues from the Suez Canal, which contributed to record revenues last year, as Marc Espanol reports for Pro
  • Algeria bullish on energy market. The World Bank revised Algeria’s projected growth rate upward to 2.3% this year, supported by higher government public spending and windfall energy revenues of $50 billion in 2022, compared to $34 billion the previous year. Algeria’s economy grew 3.75% last year. Francisco Serrano has the analysis here on why Sonatrech, Algeria’s state oil company, is expecting another strong year in 2023. 
  • Oman invests in hydrogen. Oman’s energy sector, with its emphasis on renewables and clean hydrogen, remains the key driver of the country’s economic progress, according to Salim Al Aufi, Oman’s minister of energy and minerals, in an exclusive interview with Al-Monitor this month. Oman’s economy grew by 4.5% last year and is expected to grow 3.9% this year. Sebastian Castelier has the analysis for Pro on whether, and how, Oman will manage the upcoming consolidation of its so-far successful public sector reforms begun two years ago.