November 7, 2008
The world is entering into a major recession. Global economic growth will go down to less than 2 percent in 2009, with USA and Europe as the most affected regions, and most of the Asian and African countries the least hurt.
This recession, which follows the global unleashing of the US banking disaster, will be not much different from any previous economic slowdowns, except its unprecedented global spread. No country, no economic sector, no household will be spared. Everybody will cut back on consumption and investment. Very few farsighted people will have the guts to look b beyond the current gloom and invest in long-term projects.
The MED countries will be hit in several ways.
- First, oil and gas exporting countries will find their export and budget revenues curtailed by a quarter or so over 2007, due to the sharp decline of oil prices. This will lead them to rethink their investment planning, first in the oil and gas sector, but also in roads, housing, water treatment etc.
- Second, the traditional tourist countries will have to face a decline of tourist flows, in the order of 10-25 percent.
- Third, countries that have diversified into subcontracting for the automobile industry like Tunisia or Morocco will suffer from declining sales of automobiles.
- Fourth, GDP growth in the MED is likely to descend to 2-3 percent in 2009, half of what it used to be in the last few years.
- Fifth, this is bound to lead to sharply higher unemployment throughout the region, with an increase of social and political tensions. We have to anticipate movements of social unrest throughout the region. The already weak legitimacy of governments will come under severe stress.
Governments should take speedy action to minimise the impact on employment. They should enact state-financed or subsidised investment projects –water and water treatment, climate friendly housing, subways, solar or wind energy installations, reforestation, schools etc. Everything that will put people back to work is better than a balanced budget.
The EU should rapidly consult with its MED partners and offer € 3-5 billion long-term loans from the EIB to bridge the financing gaps.Author : Eberhard Rhein