1. The Global Economic Outlook and Implications for the Region Masood Ahmed Director, Middle East and Central Asia Department Beirut, April 2009

2. Global financial strains, though subsiding, remain elevated Money Market Spreads (3m LIBOR minus government paper yield) Equity Markets (1/1/2007=100)

3. and have severely affected global economic activity Real Growth Rates (In percent, quarter over quarter annualized)

4. Recent data point to sustained weakness Industrial Production (12-month percentage change) World Trade (12-month percentage change) 1/ In SDR terms.

5. Prompting a significant downward revision to the forecast Overview of the World Economic Outlook Projections (percent change unless otherwise noted)

6. Downside risks continue to dominate for the advanced economies Intensification of the negative feedback loop between the real economy and the financial system Intensification of the negative feedback loop between the real economy and the financial system Deflation risks could reinforce a deeper and longer downturn Deflation risks could reinforce a deeper and longer downturn

7. Implications for Emerging Markets: Key Transmission Channels Fallout from advanced economies through weaker exports, investments, remittances and tourism Fallout from advanced economies through weaker exports, investments, remittances and tourism Sudden stop in cross-border financing, which could exacerbate corporate and banking sector vulnerabilities Sudden stop in cross-border financing, which could exacerbate corporate and banking sector vulnerabilities Additional risks coming from possible protectionist measures Additional risks coming from possible protectionist measures

8. Developments and Outlook for the MENA region

9. The slump in global demand has led to a collapse in commodity prices Oil Prices (In U.S. dollars per barrel)

10. Oil exporters’ external and fiscal balances are deteriorating sharply... Current Account and Fiscal Balances (In percent of GDP)

11. ... and growth is slowing. Real GDP Growth, Oil-Exporting Countries (Annual percent change)

12. For MENA oil importers, slowdown because of weak growth prospects in partners MENA Oil Importers US -2.6% EU-15 -3.2% GCC 1/ 4.9% ≈ 10% ≈ 33% ≈ 10% 1/ January 2009 projection for non-oil GDP growth.

13. Exports: a major transmission channel Merchandise Exports, 2007 (In percent of GDP)

14. Remittances are another Workers Remittances, 2008 (In percent of GDP)

15. Leading to lower growth Real GDP Growth (Annual percent change)

16. Risk—Lower Oil prices Oil Break Even Prices, 2009 (U.S. dollar per barrel)

17. Risk—Global growth and investor sentiment weaken further Weaker exports, tourism, and remittances Sudden stops or reversal in capital flows Slowdown in Europe impacts North Africa Slowdown in MENA oil producers impacts the whole region

18. Risk—Asset price corrections deepen further Change in Stock Market Indices (Jan 01, 2008 – Mar 24, 2009, in U.S. dollars)

19. Key Policy Choices Oil producers: Maintain fiscal spending Oil importers: Exploit fiscal space if available Apply some monetary stimulus, if possible Enhance financial supervision and monitoring