Mena economies, including Egypt, Morocco and Tunisia, as well as the countries in the Levant region are expected to be affected by reduced tourism revenue amid the Israel-Gaza conflict, experts have said.
However, GCC economies will continue to grow amid higher spending by regional governments.
James Reeve, chief economist at Jadwa Investment, told The National on the sidelines of the AIM summit in Dubai on Monday: “Next year would be OK growth-wise [for GCC economies] but not for the Levant … they are going to suffer.
“Then we have a slowdown in tourism for Egypt and potentially Morocco, Tunisia and Saudi Arabia.”
The Israel-Gaza war, which has become a major humanitarian crisis, has created further uncertainty for a global economy that is feeling the effects of stubborn inflation and high borrowing costs.
Last week, the International Monetary Fund voiced concern about the conflict and the impact it could have on regional economies.
“We are concerned first and foremost about the epicentre of the war, the tragic loss of lives, but also the destruction and the reduction of economic activity,” the fund’s managing director Kristalina Georgieva told the Future Investment Initiative in Riyadh.
The “chains of the impact” are already visible in neighbouring countries such as Egypt, Lebanon and Jordan, Ms Georgieva said, adding that the uncertainty could “kill” tourist revenue inflow.
“Investors are going to be shy to go to that place, [while the] cost of insurance, if you want to move goods, [will] go up,” she said.
For Saudi Arabia, the Arab world’s largest economy, the loss of tourism revenue due to the conflict “doesn’t cause a material problem but Egypt is going to have a problem”, Mr Reeve said.
Home to the Giza pyramids and other attractions, tourism is a key pillar of Egypt’s economy.
The sector’s revenue hit $13.6 billion for the fiscal year 2022-2023, up nearly 27 per cent annually, local media reported this month, citing official data.
Strong public-sector investment by the Public Investment Fund will support Saudi Arabia’s economy, Mr Reeve said.
The PIF, the kingdom’s sovereign wealth fund, is boosting spending to develop new projects such as the $500 billion Neom.
Saudi Arabia’s economy expanded by 1.2 per cent in the second quarter of this year, a slightly faster pace of growth than the initial estimates, driven by a sharp expansion in the non-oil sector, according to the General Authority for Statistics.
Gross domestic product at current prices was 970 billion Saudi riyals ($258.66 billion) in the three months to the end of June, it said.
The UAE, the Arab world’s second-largest economy, will also continue to grow, Mr Reeve added.
“There is probably enough going on in the UAE, in terms of government spending, to keep things bubbling on.”
The UAE economy expanded by 3.7 per cent annually in the first half of the year, driven by strong non-oil sector growth, Abdulla bin Touq, Minister of Economy, told the AIM summit on Monday.
“People clearly see this region [the GCC] as a place of growth, as a place of safety and security,” Gary Dugan, chief investment officer of Dalma Capital, said at the event.
“That’s not broken as yet but if this [Israel-Gaza war] continues for some time, then the whole story loses momentum and you are looking at much more modest growth.”
He also said the global economy would “struggle” next year and record slower growth than in 2023.
“We continue to live in a time of volatility and the risk is definitely increasing,” Anne Walsh, managing partner and chief investment officer at Guggenheim Partners Investment Management, said during a panel discussion at the AIM summit.
“We have geopolitical risks … more inflation, deglobalisation, a monetary tightening era, all of these dragging down activity … 2024 will be another year like 2023, except [growth] will be slower,” she said.
Updated: October 30, 2023, 1:51 PM