The COVID-19 stimulus packages reached $ 231.6 billion and the recovery faces challenges, particularly the limited policy space available to support the recovery in the medium term, in addition to the urgent need to ensure an efficient allocation of resources between economic sectors to keep pace with the dynamic structural transformation imposed by Pandemic.
The global economy is witnessing its worst economic crisis since the Great Depression of the 1930s, as a result of the outbreak of the COVID-19 pandemic that is causing a sharp and unprecedented decline in economic activity in advanced, developing and emerging market economies. In addition, the outbreak of the pandemic has a negative effect on consumer and producer confidence, output and productivity, domestic demand, trade and international capital flows, causing them all to fall to their lowest level ever in a long time. Accordingly, the world economy is projected to shrink by 5 to 8 percent and losses of $ 8 to 12 trillion are expected in 2020 and 2021, based on estimates released by the international organizations.
During such an unprecedented crisis, international institutions and the G-20 countries have implemented large-scale stimulus packages to prevent the global economy from entering a deep and protracted recession. In all countries, governments have boosted demand through expansionary monetary and fiscal policies adopted as part of stimulus packages that have reached around $ 14 trillion. In this context, stimulus packages have sought to pave the way for economic recovery, given their significant contribution to mitigating the negative impact of the pandemic on both households and the corporate sector. This was aided by the reopening of many economies and the gradual removal of restrictions on activities in various frontline sectors. However, pandemic concerns continue to overshadow the global economy, weakening expected trajectories for recovery, especially as the world is likely to face a second or third wave of economic stagnation.
In addition, the global economy continues to suffer from various growth constraints, notably persistent trade tensions, disruptions in global supply chains, slow progress in human development and historically low productivity. Meeting these challenges requires strong policy efforts and international cooperation to support economic recovery and facilitate the transformation towards further development towards sustainable and inclusive economic growth.
The COVID-19 is expected to negatively impact Arab economies, particularly sectors affected by full or partial lockdown, contributing about 70 percent of Arab GDP. The SME sector, which contributes about 45 percent of GDP and a third of official employment, has been badly affected by the current crisis. In addition, Arab oil exporters are likely to bear nearly half of the burden of oil stocks in 2020 and 2021 approved the OPEC + agreement, which will have a major impact on Arab economies. It is worth noting that, despite ongoing efforts to diversify oil-exporting economies, the oil sector makes up about 27 percent of the GDP of the Arab economy, 42 percent of total exports, and 60 percent of government revenues.
Once the World Health Organization (WHO) declared that COVID-19 was a global pandemic, Arab governments took serious action, followed by precautions to stem the negative impact of the outbreak on Arab economies, with stimulus packages worth nearly $ 231.6 billion. amounted to. to date, including a range of measures to mitigate the virus’s social and economic impact and support its medium-term economic recovery. In this regard, it should be noted that the levels of stimulus packages vary depending on the fiscal space available to each country, the coverage of the social safety net and the ability of countries to mobilize large funds in a short time to absorb economic shocks. .
Given these developments, Arab economies face a multidimensional challenge that will reduce activity in both the oil and non-oil sectors. As a result, Arab GDP is expected to contract by about 4.0 percent in 2020. In contrast, a gradual recovery is expected in 2021, with Arab economies showing growth of 2.6 percent. The impact of the crisis is expected to be stronger on the oil-exporting Arab economies, which are projected to contract by 4.7 percent in 2020, while the more diversified Arab economies are expected to contract less by about 2.0 percent this year. will experience. At the level of the Arab countries individually, all Arab economies are expected to contract in 2020, except Egypt, which is expected to grow by 2 percent this year, compared to an expected growth of 6 percent before the pandemic.
While Arab countries are opening their economies in whole or in part, there are significant challenges to economic recovery, including:
- The limited policy space available to support medium-term recovery due to growing internal and external imbalances.
- The urgent need to ensure an effective and rapid allocation of resources between economic sectors to keep pace with the dynamic structural transformation imposed by the spread of the virus, accelerating the pace of digital transformation.
- Maintain an expansionary fiscal policy while ensuring debt sustainability.
- The need to strengthen social safety nets and pursue active labor market policies to reduce job losses, especially in SMEs.
- The expected tightening of financial markets and its impact on the ability of the Arab economies to meet their financing needs and the need for innovative financing patterns for the Sustainable Development Goals.
- Safeguarding financial stability and safeguarding the banking sector’s ability to extend the required credit facilities needed to support the recovery amid the recent decline in bank earnings.
In terms of inflation, the general price level in the Arab countries as a group in 2020 was affected by various factors such as the supply of goods and services due to the disruption of global supply chains, the rise in VAT levels in some Arab countries , as well as unfavorable domestic developments in some Arab countries. On the other hand, inflationary pressures resulting from the significant decline in the value of some Arab currencies against foreign currencies will continue to affect price levels in these economies.
The projected recession and the measures taken to keep prices of goods and services stable in most Arab countries over this period due to the COVID-19 pandemic will ease inflationary pressures in 2020. As a result of these developments, the inflation rate in the Arab countries is expected to rise to around 8.8 percent in 2020, while inflation is expected to fall to around 6.3 percent next year.
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© Press release 2020