Europe, Middle East
The EMEA region consisting of Europe, the Middle East and Africa is a large and diverse part of the world. From an economic perspective.
The Eurozone returned to growth in 2014 after two years of economic contraction. Despite this there is little cause for cheer as the fundamentals and overall economic picture in the currency union are still very weak. This is the case no longer only in the periphery, which has been hit hardest with over a quarter of the population unemployed in Greece and Spain and over a quarter of Greek output lost during the crisis. The region’s core, including its two biggest economies Germany and France, has also started to feel the pain of the austerity policies that have been implemented elsewhere through lower demand for exports and elevated political upheaval.
A slowing China and the crisis in Russia and Ukraine are also damaging export revenues for many German businesses. And this is all despite efforts by the European Central Bank to support the recovery through a plethora of measures ranging from negative interest rates to targeted funds and quantitative easing to encourage lending. All this is unlikely to be sufficient to ensure a return to growth however as long as the fiscal motors are working in the opposite direction. Overall the outlook for the currency bloc is highly uncertain with predictions for 2015 ranging from a modest uptick in growth to return to recession depending on the handling of the Greek debt situation and the direction of course taken by policymakers in terms of monetary and fiscal policies.
In the European Union, the economies of Eastern and Central Europe have been hit through contagion from the geopolitical crisis between Russia and Ukraine and the subsequent rift between Russia and the West. Many economies in the region are still dependent on Russia and weakness there has taken its toll. What is more, the failure of its neighbouring trading partners in the Eurozone to make a successful return to recovery is also harming the economic outlook for the region.
The Middle East and North Africa region, and in particular the oil-dependent economies of the Gulf, have been hit hard by the tumble in the price of oil. The sharpness with which prices have fallen is judged to reflect the market adjusting its demand and supply expectations. On the supply side, the US shale gas boom, steady production growth from Libya and Iraq, and the decision by OPEC not to restrict output in response to the price falls at its November meeting are contributing to a global glut of supply. These increases in supply have been met by weak demand in the slowing economies of Eurozone, Japan, and more recently even China, thus further intensifying downward pressure on prices.
This year, the boost from cheap oil is expected to help the global economy see a pickup in growth, which should materialise during the second half of 2015. Looking further ahead, lower prices are expected to restrain supply growth (especially among shale producers, who will be forced to shut down because of low margins). Moreover, current low prices are discouraging substitution away from oil and into alternative sources of energy, boosting the potential for future fuel commodities demand when the global economy picks up pace. These factors suggest a better outlook for the Middle East region in the medium-term.
However, even these developments will not be enough to sustain growth in the Middle East close to the pace seen in the pre-crisis period. Over the longer-term, energy demand will be weighed upon by structurally slower growth in much of the world economy, as well as ever-increasing energy efficiency. This should be counterbalanced somewhat by increased energy demand from emerging markets as they develop. With many economies in the region still heavily-dependent on oil, and with little success in diversifying their economies towards other sectors, the price of oil is expected to remain a major driver for their economic outlook. Given this, annual average economic growth in the horizon to 2019 is forecast to be close to 4.0%.
Sub-Saharan Africa continues to enjoy bright economic prospects in the medium and long-term horizon given its room for catch-up growth and development. The near-term outlook however has been clouded by the Ebola outbreak that has paralysed economic activity and trade in West Africa. Nigeria, the continent’s biggest economy, has been hit by the falls in the price of oil as hydrocarbon revenues account for around 80% of government receipts.
The end of the commodity super-cycle is also expected to take a toll on many other African economies that have failed to diversify away from natural resources production and exports. Adding to this malaise, the move by the Federal Reserve towards tighter monetary policy is likely to weaken African economies reliant on foreign capital as it will drive investors back to the US as the dollar strengthens. Despite all this in a global context the pace of economic expansion should remain strong in Africa, with its eight largest economies seeing growth of 5.8% on average between 2015 and 2019.