The International Monetary Fund is out with its latest Regional Economic Outlook (pdf) for the Middle East and North Africa, giving us a regional deep dive into its headline growth projections it released a day earlier in its World Economic Outlook (pdf).

ICYMI- The Fund on Tuesday once again cut our growth outlook to 3.0% for the fiscal year 2023-2024, down 0.6 percentage points from its last projection in October. The picture for the region as a whole wasn’t much better either, with its growth projection for the year cut 0.5 percentage points to 2.9%.

WHAT’S BEHIND THE CUT + WHERE DOES EGYPT STAND–

Israel’s war on Gaza is “exacerbating an already challenging environment for neighboring countries and beyond,” warns the IMF. The report also cautions that if the conflict spreads outside the enclave and disruption in the Red Sea escalates, the region could face a “severe economic impact, including on trade and tourism” — and you don’t need to be a world-renowned regional economic expert to know which country this applies to most.

Nevertheless, tourism in Egypt has proved to be resilient: The Fund highlights that our tourism industry has fared much better than in Lebanon and Jordan, but high-frequency tourism data nonetheless “show signs of a possible deterioration.”

But we’re not through the storm yet: “With an escalation of the conflict, a more severe or persistent negative impact on tourism could materialize” in the region, the report adds.

A dark cloud is hanging over our Suez Canal revenue expectations: The halting of numerous shipping lines through the Suez Canal has not gone unnoticed by the IMF, with the Fund warning of the knock-on effect this could have on foreign exchange flows. The Suez Canal provided “2.2% of GDP in annual balance of payment receipts and 1.2% of GDP in fiscal revenue,” the report added

Investors could get spooked: “Heightened uncertainty is expected to weigh on investor sentiment and net foreign direct investment inflows,” the Fund wrote.

A dip Suez Canal revenues and FDI will only add to our existing FX shortages: Reductions of foreign exchange flows from the the Suez Canal and FDI will add to the “sustained adverse impact of foreign exchange shortages on private sector activity” and “are projected to negatively impact the external sector and economic growth,” the statement added.

Inflation nation: As in most other countries in the region, says the Fund, inflation is easing here at home. However, the IMF singles out our FX shortages as one of the reasons why inflation has proven more persistent than hoped regardless of promising inflation data in recent months.

This is all in addition to rising expenditures here at home: “On the fiscal side, expenditures could rise amid needs to support vulnerable households and displaced communities and to bolster security, particularly for economies in close proximity to the conflict,” the Fund writes. On top of this, the Fund also adds that the public and private sectors will have to contend with “higher energy and borrowing costs from an unexpected tightening of regional financing conditions,” which is forecasted to further hold back growth.

If this is the best case scenario, we’re not sure we want to hear the worst case scenario:The IMF’s outlook for the region and headline growth figures are based upon the assumption that the war on Gaza and wider disruptions stemming from it start to ease in the first quarter of 2024. However, with Israeli military officials predicting the conflict continuing throughout the year, Israeli ministers calling for ethnic cleansing and settlements in Gaza, and ceasefire negotiations hitting roadblocks, the conflict shows few signs of ending soon.

Tags: