IMF Projects MENA Region’s GDP To Grow 2.7 Percent In 2024

Economic

Summary:

IMF projects MENA region’s GDP to grow 2.7 percent in 2024.

In its most recent regional economic outlook, the International Monetary Fund (IMF) expects the Middle East and North Africa (MENA) region’s gross domestic product (GDP) to grow moderately by 2.7 percent in 2024 from 1.9 percent in 2023. In 2025, the IMF expects growth to strengthen by 4.2 percent as the impact of temporary factors such as regional conflicts fade.

However, those projections signify a 0.7 percent downgrade from last October’s projections due to several factors including regional tensions, Red Sea shipping disruptions, and oil production cuts. Those factors have raised both debt levels and borrowing costs across the region.

In its report, the IMF expects the MENA’s oil-exporting economies to see a 2.9 percent growth in 2024 from 1.9 percent in 2023. Moreover, it expects emerging markets and middle-income oil-importing economies across the region to grow by 2.8 percent, down from 3.1 percent in 2023. Finally, the report expects growth to improve in low-income oil-importing countries, but remain negative at -1.4 percent in 2024, up from -9.6 percent in 2023.

Red Sea disruptions remain a concern

In the MENA region, the IMF expects Red Sea disruptions to remain a concern for trade and shipping costs. Around 12-15 percent of global trade passes through the Suez Canal. In particular, Egypt remains most vulnerable to these disruptions as revenues from the Suez Canal made up 1.2 percent of its GDP in 2022-2023. Between November 2023 and February 2024, trade through the Suez Canal dropped by more than half, from 38 million metric tons to 16 million metric tons.

Voluntary oil production cuts impact growth

Oil production cuts across the MENA region largely drove growth in oil and gas producers in 2023. However, following voluntary production cuts by some OPEC+ countries, the Gulf Cooperation Council (GCC) countries experienced a decline in hydrocarbon growth. As a result, real GDP growth in the GCC slowed to 0.4 percent, despite robust non-oil growth.

Across the GCC region, the IMF expects non-oil activity to remain the main contributor to growth in the years ahead. The voluntary oil production cuts, especially in Saudi Arabia, will continue to hamper growth this year. Hence, the IMF revised its growth for GCC members down by 1.3 percentage points since October to a moderate 2.4 percent in 2024. The fund also expects growth to rise to 4.9 percent in 2025 if oil production picks up before settling at about 3.5 percent over the medium term. As for non-GCC oil exporters, the IMF revised its growth outlook up to 3.3 percent in 2024 from 3 percent in October.

Middle- and low-income countries

Emerging market and middle-income countries in the MENA region continue to face rising fiscal pressures, with rising interest payments eroding efforts to strengthen fiscal positions. The regional tensions add another layer of uncertainty, with the duration and impact of tensions remaining highly uncertain. As for low-income countries, conflicts are also adversely impacting activity. However, the IMF expects this trend to turn for a few MENA economies as it projects an improvement in economic conditions in 2025.

Monetary tightening cycles and inflation

On a positive note, monetary tightening cycles seem to have ended in most countries as inflation is approaching its historical average in many MENA economies, with inflation close to or even below average in one-third of the region’s economies. The IMF expects inflation to fall to 15.4 percent in 2024 and 12.4 percent in 2025. Excluding Egypt and Sudan, average inflation across the region is below 10 percent. Finally, the IMF warns policymakers of premature or excessive easing. In light of high debt levels, fiscal policy should focus on bringing them down decisively. Amid heightened uncertainty, the IMF urges countries in the MENA region to implement reforms to fortify their fundamentals. This includes strengthening institutions and seizing potential opportunities from new trade corridors by reducing long-standing trade barriers, diversifying products and markets, and improving infrastructure.

Source：economymiddleeast

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Owen Li

Economic

Commodity

Investors boosted their exposure to Brent as the conflict between Iran and Israel escalated but there was selling across the rest of the petroleum complex amid doubts about the sustainability of higher prices.

Hedge funds and other money managers sold the equivalent of 23 million barrels in the six most important petroleum futures and options contracts over the seven days ending on April 16.

Purchases of Brent (+31 million barrels) were more than offset by sales of NYMEX and ICE WTI (-35 million), U.S. gasoline (-5 million), U.S. diesel (-5 million) and European gas oil (-9 million).

Brent is most exposed to production and shipping disruptions as a result of conflict in the Middle East and fund managers boosted their net position to 335 million barrels (75th percentile for all weeks since 2013).

But much of this additional exposure seems to have rotated out from WTI, where funds sold at the fastest rate for 10 weeks and the net position was trimmed to just 183 million barrels (31st percentile).

While fund managers had become strongly bullish on Brent they were increasingly bearish about prospects for WTI.

In the premier NYMEX WTI contract, there was evidence of a fresh cycle of short selling, which had started four weeks earlier when prices climbed above $80 per barrel.

Fund managers had boosted short positions equivalent to 71 million barrels by April 16, up from 23 million on March 19.

In refined fuels, previous bullishness about a continued depletion of inventories and a further rise in prices had also started to ebb away.

The hedge fund community is broadly bullish about the outlook for both crude and fuel prices but not with much conviction.

Bullish long positions outnumber bearish short ones by a ratio of 3.60:1 which is in only the 42nd percentile for all weeks since 2013.

There are upside risks from Middle East conflict, production restraint by Saudi Arabia and its OPEC+ allies, and a cyclical economic upswing in the United States

But these are offset by downside risks from strong growth in non-OPEC output, persistent inflation, higher-for-longer interest rates, and a desultory economic recovery in Europe and China.

Escalating conflict between Israel and Iran has masked a slight deterioration of investor sentiment about the outlook for oil prices in recent weeks.

Once the conflict appeared to have been contained, with Israel’s limited retaliation against Iran, prices have retreated.

U.S. Natural Gas

Investors turned more bearish towards U.S. natural gas as the seasonal inventory surplus continued to swell and stocks climbed near to a record high for the time of year.

Hedge funds and other money managers sold the equivalent of 173 billion cubic feet (bcf) in the two most important futures and options contracts linked to prices at Henry Hub in Louisiana.

The rate of selling was the fastest for eight weeks since mid-February, before some of the largest producers announced they would be scaling back drilling and production.

As a result, funds held a net short position of 483 bcf (19th percentile for all weeks since 2010) versus a net short of 310 bcf (25th percentile) the week before.

Working gas inventories amounted to 2,333 bcf on April 12, the highest for the time of year since 2016 and before that 2012.

Inventories were an enormous 641 bcf (+38% or +1.38 standard deviations) above the prior ten-year average and the surplus shows no sign so far of narrowing despite prices close to multi-decade lows in real terms.

In December, the latest month for which data is available, power generators paid the lowest seasonal prices for gas since 1974, after adjusting for inflation. Since then, the real acquisition cost has likely fallen even further.

But the warmest winter on record has depressed consumption of both gas and electricity, ensuring that inventories have remained exceptionally high and postponing any rebound in prices.

Source: Reuters

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Alex

Economic

Commodity

Rising food prices around the world may finally be seeing a bottom this year.

According to Oxford Economics, global food prices are expected to decline in 2024, offering some relief for shoppers.

“Our baseline forecast is for world food commodity prices to register an annual decline this year, reducing pressure on food retail prices further downstream,” the economic advisory firm wrote in a recent note.

The key driving force behind the decline in food commodity prices is the “abundant supply” for many important crops, especially wheat and maize.

Bumper harvests in recent months for both staple crops led to a steady decline in prices. Wheat futures

have fallen almost 10% year-to-date, while maize futures lost about 6% over the same period, according to FactSet data.

Farmers ramped up production of both wheat and corn grains following higher prices after Russia began its invasion of Ukraine in 2022.

As a result, global maize harvests for the marketing year ending August this year are likely to come in at record levels, according to Oxford's analysis. Wheat harvests are also forecast to come in high, although slightly lower than the record level in marketing year 2022 to 2023, the Oxford report said.

Russia-Ukraine war

Supply pressures of grains in Russia and Ukraine have also eased.

Despite the collapse of the Black Sea Grain initiative in July last year, Ukrainian agricultural exports have been holding up well, Oxford Economics' Lead Economist Kiran Ahmed wrote.

Russian wheat exports have also been flooding international markets, keeping prices low, he added.

High Global Food Prices May Finally See a Bottom in 2024, Says Oxford Economics_1

Wheat and maize, along with rice, account for over half of global caloric intake. That means the direction of their prices will critically influence consumers' food budgets around the world, the report pointed out.

Even though wheat and corn prices have seen a robust decline, rice prices have been steadily climbing, with global supplies hampered by export restrictions imposed by India, which accounts for around 40% of the world's rice production. Poor harvests in the country last year also pushed prices higher. Contrary to the slump seen in wheat and maize prices, rough rice futures have gained over 8% year-to-date.

Global food prices registered a decline of 9% in 2023, according to the World Bank. Similarly, the United Nations food agency's world price index hit a three-year low in February, but saw a slight rebound in March, lifted by increases for dairy products, meat and vegetable oils.

“We expect prices to fall a further 5.6% this year before picking up on an annual basis next year,” said Ahmed.

That said, Oxford Economics noted that risks to its food price forecast are still “overwhelmingly skewed to the upside,” with adverse weather conditions on the cards.

Bad weather has been denting confidence of agribusinesses and crop outlooks, with cocoa recently soaring to record levels as West African farmers battle with inclement weather and disease. If poor weather conditions persist, harvest prospects could be impaired in other key crop growing regions, the note added.

“However, we think prices are now near a floor and will begin to rise gradually through [the second half of] 2024,” the report said.

Buyers in Africa and Asia have also held back from purchasing wheat on hopes of even lower prices — and their return to the market could drive a recovery in prices, Ahmed said. Additionally, rice prices, which remain high, could also encourage more export restrictions coming out of India.

“Thus, while our base case is for food prices to remain subdued this year, the risks are building that prices could rebound more sharply than anticipated. This could keep food price inflation higher than in our base case, maintaining pressure on the consumer,” he concluded.

Source: CNBC

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Cohen

Economic

Central Bank

The Bank of Japan is widely expected to leave its benchmark interest rate unchanged Friday, with investors focusing on any hints of a less dovish tilt as the yen trades around a 34-year low.

Governor Kazuo Ueda and his fellow board members are set to keep the short-term rate around 0% to 0.1% at the end of their two-day policy meeting, after the central bank called time on its massive monetary easing program last month, according to all but one of 53 surveyed economists. BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_1

BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_1

Just five weeks since that monumental shift, Ueda faces the challenge of striking a delicate balance between putting a floor under the yen while also supporting a fragile economic recovery.

The yen surprised Japanese authorities by retreating even after Japan conducted its first rate hike since 2007. The weak currency could spur cost-push inflation, and some executives at businesses that benefited from the depreciation of the currency have started to express concerns about the overall impact.

That has sharpened the focus of market players on whether the bank might send a clearer signal of policy normalization this time around.

“The risk is rising for a front-loading of a rate hike in June or July,” said Ryutaro Kono, chief Japan economist at BNP Paribas SA. “The yen is likely to keep falling gradually,” as the government views intervention as insufficient to shift the tide in light of strong US economic data and escalating geopolitical risks in the Middle East, he said.

Suzuki’s Warning

Japan’s finance minister reiterated warnings against excessive currency moves during an appearance in parliament Tuesday.

“I think it’s fair to assume that the environment for taking appropriate action on forex is in place, though I won’t say what the action is,” Shunichi Suzuki said.

The BOJ’s latest quarterly inflation forecasts and its characterization of the risks to its view are among the easiest ways the central bank could flick at the possibility of earlier rate hikes. Other potential areas include its bond-buying plans and the language the central bank uses to describe its purchases, according to some market watchers.

Governor Ueda hasn’t ruled out responding to exchange rates with a policy move if the impact on prices is seen to be “non-negligible.” The yen fell to 154.85 versus the dollar overnight, the weakest level since June 1990. Traders are on high alert over the possibility Japanese officials might step back into the market to buy the nation’s currency, as they last did in 2022. BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_2

BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_2

For now BOJ policy is continuing to weigh on the yen. Ueda has emphasized that he expects financial conditions to stay easy to ensure there’s no disruption to markets or the economic recovery stemming from the BOJ’s policy pivot. That message may have permeated markets too strongly, analysts say.

Bets by leveraged funds and asset managers on yen weakness increased to more than 173,000 contracts through April 16, the most on record in Commodity Futures Trading Commission data going back to 2006. It’s also the biggest short position among nine major currencies, according to Bloomberg calculations, making the yen vulnerable to a snapback, should the direction change. BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_3

BOJ To Hold Rates With Focus On Hawkish Signals To Buoy Yen_3

People familiar with the matter said earlier this month that the bank is likely to discuss raising its projection for consumer prices excluding fresh food from the current 2.4% in the current fiscal year, and forecast price gains of around 2% in its first projection for fiscal 2026.

The recent rise in oil prices in addition to the surprisingly strong results of spring wage talks make it almost certain inflation forecasts will be revised higher. As a result, three quarters of BOJ watchers say the assessment of the risk balance, and whether upward risks are highlighted, will be more important than usual this time. The bank said risks for prices are “generally balanced” in the previous report in January.

“If underlying inflation continues to go up, we would be very likely raising interest rates,” Ueda said in a speech last week in Washington.

Shigeto Nagai, former head of the BOJ’s international department, said that a policy reaction function has shifted under Ueda’s leadership, with priority placed on returning Japan to a world with positive interest rates. Still, he doubts the bank will respond to the weak yen, because the rate gap between BOJ and the Fed is just too wide for Japan to address on its own.

“With a limit on how high the rate can go in Japan, rushing to raise rates would wind up crystallizing the fact there’s little room to move,” said Nagai, head of Japan economics at Oxford Economics. “It’s most effective to keep showing a readiness to hike rates for the currency.”

Any move by the BOJ aimed at buoying the yen could be overshadowed several hours after the policy announcement, with the US set to release the Federal Reserve’s preferred inflation gauge at 9:30 p.m. Tokyo time. Next week, Fed chair Jerome Powell will take center stage as the US central bank concludes its meeting on May 1.

Bond traders are closely watching to see if the BOJ indicates a shift in its bond buying plans. A reduction could be taken as a signal of an additional normalization step. After its March meeting, the BOJ pledged to keep buying almost the same amount of bonds as previously, or about ¥6 trillion ($38.8 billion) per month. Ueda last week said the bank thought it would be “dangerous” to completely exit the market in one go.

“What bond market participants are monitoring is the guideline for purchasing long-term bonds,” said Naomi Muguruma, chief fixed-income strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. “Buying bonds is no longer a tool for policy objectives, but there is no change that the BOJ’s purchases have a big influence on the market.”

Source：Bloomberg

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FastBull Featured

Remarks of Officials

The Bank of Portugal Governor Mario Centeno said in an interview on April 22 as follows.

The European Central Bank (ECB) may cut interest rates by more than 100 basis points in 2024 because inflation is likely to fall to 2% sooner than expected in March. Current inflation is very close to 2% and the ECB is even forecasting that it will drop below 2% in the coming months, albeit temporarily. We can't only cut rates when inflation reaches 2%.

Due to the weaker economic data in March, there is a higher probability that the monetary policy path will be characterized by interest rate cuts in the future.

The performance of the labor market has allowed the economy to avoid a recession while lowering inflation. This is rare in history. However, if the labor market does not provide enough jobs and appropriate wage growth, the economy will face greater challenges.

Monetary policy therefore needs to protect the labor market, and delaying a rate cut could lead to a situation where, in the end, the ECB will resort to more aggressive rate cuts. With this in mind, I favor a meeting-by-meeting approach to set monetary policy.

The current inflation projections are already compatible with price stability, which needs to be taken into account when we assess the ECB's next steps.

Inflation will be below 2% in some months this year and it will consistently be slightly below 2% as of mid-2025. This means that even if the ECB makes four cuts by 25 basis points each time, the euro area's policy rate will still be higher than the neutral rate. That is, we will still be in a region where there is financial tightness.

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Owen Li

Economic

Stocks

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5%, helped by a 1% jump in Taiwanese shares and a 0.8% advance in Hong Kong's Hang Seng index.

The Asian index rose 1% the day before on easing fears of a major escalation in the Middle East conflict, recovering some of the 3.7% losses last week. Japan's Nikkei edged up 0.1%.

Tech shares in the region cheered. Taiwan Semiconductor Manufacturing Co Ltd rallied 1.5% while MSCI Asia-Pacific ex-Japan IT index jumped 0.8%.

However, Chinese shares fell, with the blue chips losing 0.6%.

On Wall Street, big tech shares outperformed ahead of their quarterly results this week, sending the Nasdaq 1.1% higher. AI darling Nvidia gained 4.4% while Amazon.com rose 1.5% and Alphabet jumped 1.4%, although Tesla dropped 3.4 as it cut prices in its major markets.

"Odds are the earnings reports that we see over the next few weeks will be positive, but obviously there's still issues around what the Fed will do the next," said Shane Oliver, chief economist at AMP. "It's too early to say that problems in the Middle East have gone away."

"There are lots of things that could cause volatility between now and the end of the year. And so we're probably coming to a more constrained, more volatile period for markets."

Tech giants including Tesla, Meta Platforms, Alphabet and Microsoft announce their earnings results this week.

UBS on Monday downgraded its rating on the mega-cap companies, warning that profit growth momentum of the so-called Big Six technology stocks could "collapse" over the next few quarters.

In addition to top corporate earnings, markets are also awaiting the release later this week of the U.S. gross domestic product figures and the March personal consumption expenditure data - the Fed's preferred inflation gauge - to further ascertain the trajectory of monetary policy.

Traders see the first Fed rate cut would most likely come in September, while the total easing expected this year would just be 40 basis points, a sea change from about 150 basis points of cuts priced in at the beginning of the year.

The drastic shift in interest rate expectations has seen the two- and 10-year U.S. Treasury yields both rising almost 100 basis points from recent lows.

On Tuesday, they were little changed amid a lack of data and news, with two-year yields holding at 4.9713% and 10-year yield at 4.6167%.

The diverging rate outlook between the U.S. and the Europe has weighed on the euro, which was pinned at $1.0659, nearing a five-month low of $1.0601 hit last week.

The beleagured yen kept hitting fresh 34-year lows. It firmed 0.1% to 154.71 per dollar, after plumbing another fresh low of 154.85 overnight.

Risk of intervention remains high after Japan finance minister Shunichi Suzuki said last week's trilateral meeting with his U.S. and South Korean counterparts laid the groundwork for Tokyo to take appropriate action in the foreign exchange market.

Oil prices recovered some of the sharp losses overnight as investors continued to assess the situation in Middle East. Brent futures rose 0.2% to $87.16 a barrel, while U.S. crude gained 0.2% to $82.06 a barrel.

Gold prices, however, lost 1% to $2,295.9 per ounce, after slumping 2.7% overnight.

Source: Reuters

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Devin

Economic

Central Bank

European Central Bank officials are sticking to plans to cut interest rates multiple times this year, even as higher U.S. inflation delays a pivot to looser policy by the U.S. Federal Reserve and tensions in the Middle East keep oil prices high.

Investors are rethinking what they expected to be a global easing cycle after stubbornly strong U.S. price growth slowed the Fed's plan to start lowering borrowing costs, which had been seen as the starting gun for other central banks.

ECB President Christine Lagarde has strongly hinted that the euro zone's central bank is still likely to begin reducing its deposit rate from a record-high 4% in June but has been careful to leave open its options for the path beyond.

Nearly all her colleagues from the currency bloc's 20 national central banks have been more explicit, saying they expect further rate cuts to follow as inflation in the euro zone gradually declines to hit the ECB's 2% target by next year.

All have stressed that the ECB's decisions will be based on incoming data, especially about wages, profits and productivity.

"As long as economic developments are in line with our expectations it is reasonable to expect a few more rate cuts after June by the end of the year," Madis Muller, Estonia's central bank chief, told Reuters last week.

Even Klaas Knot, the hawkish governor of the Dutch central bank, has said he is "not uncomortable" with three cuts in 2024.

Lithuania's Gediminas Simkus said more than three moves were possible, and Germany's Joachim Nagel spoke of a "cautious gliding flight".

The latest developments in the Middle East and United States were generally seen as a reason for greater caution but did not fundamentally change the picture in the euro zone, French central bank governor Francois Villeroy de Galhau argued.

Inflation in the euro zone has been falling in all categories apart from services.

"I think all the boxes have been ticked for them to start cutting in June and then I have a cut every quarter with a risk of a further one in October," Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said.

Doubts

Some investors have nevertheless begun to doubt the ECB's resolve, with money markets no longer fully pricing in three cuts by December.

Traders wager the ECB would ultimately be forced to follow the Fed, if nothing else to stem the euro's weakness.

"The FX-inflation channel is what gives us cause for concern in Europe versus the more aggressive (rate-cutting) path we had previously," economists at Morgan Stanley said in a note.

Policymakers, however, were generally comfortable with the single currency's behaviour.

"Forex markets have been very calm so far," Croatian governor Boris Vujcic said at an event in Washington last week.

And his Italian colleague Fabio Panetta emphasised that the easing effect of a weaker euro is typically offset by higher bond yields and commodity prices, resulting in a net tightening of financing conditions.

Nearly all governors stressed how the euro zone's economy was much weaker than that of the U.S., requiring a different approach.

"The U.S. and euro zone economies have decoupled," Belgian central bank chief and ECB rate-setter Pierre Wunsch told Reuters. "The gap between the Fed's and the ECB's policy rates is not new and may widen."

Some went further.

France's Villeroy, an influential voice on the Governing Council, estimated that the ECB would continue to exercise restriction on the economy for as long as its deposit rate remained above 2.5% or even 2%.

He was echoed by Portugal's Mario Centeno, who also stressed the ECB was in no rush to get to that level.

"I don't know anybody who says the neutral rate is above 3%," Centeno told Reuters. "How fast should we get there? We've got time."

One lingering area of concern was that services inflation continued to show strong momentum in the euro zone, which has been boosted by wage rises.

"In an alternative scenario, productivity growth would remain depressed over the projection horizon and demand for less interest-rate sensitive services could remain sufficiently strong," ECB board member Isabel Schnabel told an event.