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The impact of the global financial and economic crisis on the Middle East and North Africa region was relatively mild. Lack of integration and a large public sector helped insulate the region to some extent, but now these and other factors are slowing down the speed of its economic recovery. The report examines the major factors threatening the recovery and those that obstruct long-term growth - especially non-oil export growth, which in net terms contributed little to regional growth during the past decade, with non-oil exports remaining below potential in many countries in the region. The report emphasizes several major areas in need of policy makers' attention, including restrictive trade policies, particularly those affecting trade in services; governance issues linked to uneven application of rules and regulations; inefficient and inflexible labor markets and scarcity of skills, innovation and technological capabilities.

Export Markets --- International Economics and Trade --- Macroeconomic Outlook --- Macroeconomics and Economic Growth --- Non-Oil Exports --- Private Sector Development --- Resource Dependence --- Technological Readiness --- Trade --- Trade Barriers

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South Asia is regaining its economic momentum, but the recovery in the world's region with the largest number of poor people could falter in the absence of a stronger investment climate. The combined growth of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka was just 4.7% in 2012, substantially below pre-crisis levels. Much of the recent slowdown in economic growth can be attributed to stagnating investment. Total fixed investment grew by 2.6% in 2012, down from a high of 16.7% in 2010. The performance varies widely across the region. At the same time, the region is now more vulnerable because current account balances have widened, foreign direct investment has slowed, and persistently high inflation has limited the ability for central banks to use monetary policy to counter any economic downturn. Because of rising imports, countries in South Asia are also more vulnerable to increases in commodity prices. Therefore, the outlook remains cautiously optimistic with a relatively large downside risk. A pick-up of growth to 5.5% can be expected in 2013 dependent on ongoing efforts to rebuild policy buffers and boost private investment.

Economic Growth --- Economic Indicators --- Economic Policy --- Economic Risks --- Foreign Direct Investment --- International Economics and Trade --- Investment --- Macroeconomic Developments and Outlook --- Macroeconomics and Economic Growth --- World Bank

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Global capital re-balancing has highlighted structural weakness and vulnerability in South Asia, acting as a wake-up call for policy makers. While recent economic developments in advanced countries are encouraging, large parts of the region continue to slow. Portfolio outflows, triggered by the prospect of unwinding Quantitative Easing (QE) in the US, have made current account deficits more difficult to finance across emerging markets. Meanwhile, supply-side constraints and macroeconomic imbalances remain a challenge in most South Asian countries. But the depreciation of regional currencies offers an opportunity to stimulate growth and create space for reforms to improve the investment climate. While the medium-term outlook for the region remains cautiously positive, two highly complementary policies are central for needed higher and sustainable growth. First, continuing to tighten the stance of fiscal and monetary policy will help to promote macroeconomic stability and raise tax revenue to reduce vulnerability. Second, removing supply-side constraints, both regulatory and physical, will pave the way for increasing investment and growth. Given the recent economic turmoil across emerging market economies, this edition's focus section examines the relationship between the transmission of economic shocks from India to the rest of South Asia, as well as from the world to South Asia. The main findings of the analysis suggest that, independent of global business cycle movements, India plays an important role in influencing growth across the region, and that this effect has increased since the 2008 global crisis. Furthermore, the United States played a larger role in influencing global cyclical real GDP movements before the global crisis, but since then its independent influence has diminished as all regions are moving together with greater frequency. Nonetheless, much of the cyclical real GDP variation in the region remains idiosyncratic.

Economic Growth --- Economic Indicators --- Economic Policy --- Economic Risks --- Foreign Direct Investment --- International Economics and Trade --- Investment --- Macroeconomic Developments --- Macroeconomic Outlook --- Macroeconomics and Economic Growth --- World Bank

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Four years after the onset of the global financial crisis, the world economy continues to struggle. regain pre-crisis growth rates, developing countries must once again emphasize internal productivity-enhancing policies. While headwinds from restructuring and fiscal consolidation will persist in high-income countries, these should become less intense allowing for a slow acceleration in growth over the next several years. Fragile rebound after mid-year turmoil ... Financial markets conditions have improved markedly since mid 2012 due to national and EU-wide measures to improve fiscal sustainability, and the augmentation of measures that the European Central Bank (ECB) would take in defense of the euro, but so far the so far economic growth has not rebounded as sharply partly because of policy induced uncertainty, which has contributed to keep business-sector confidence low._x000D_ While growth showed signs of accelerating in Q3 of 2012, including in major middle-income countries such as Brazil and China, uncertainties being generated by the US election and fiscal cliff concerns, coupled with tensions between China and Japan over competing land claims cut into Q4 growth in high-income and developing countries. Prospects for a modest acceleration in the medium term ... Overall, the global economic environment remains fragile and prone to further disappointment, although the balance of risks is now less skewed to the downside than it has been in recent years. Global growth is expected to come in at a relatively weak 2.3 percent and 2.4 percent in 2012 and 2013, respectively, and gradually strengthen to 3.1 percent and 3.3 percent in 2014 and 2015. At an estimated 5.1 percent, GDP growth in developing countries during 2012 was among the slowest in 10 years. Improved financial conditions, a relaxation of monetary policy and somewhat stronger high-income country growth is projected to gradually raise developing-country growth to 5.5 percent in 2013, 5.7 percent in 2014 and 5.8 percent in 2015 - roughly in line with these countries' underlying potential. For high-income countries, fiscal consolidation, high unemployment and very weak consumer and business confidence will continue to weigh on activity in 2013, when GDP is projected once again to expand a mediocre 1.3 percent. Growth should, however, begin firming during the course of 2013, and expand by 2 percent in 2014 and 2.3 percent in 2015. In the Euro Area, growth is now projected to only return to positive territory in 2014, with GDP expected to contract by 0.1 percent in 2013, before edging up to 0.9 percent in 2014 and 1.4 percent in 2015. Risks to the global outlook remain familiar, and include the possibility of a worsening of conditions in the Euro Area, persistent fiscal uncertainty in the United States, a disruption to oil or food commodity supply and the possibility of an abrupt slowing of investment growth in China. While the risks are similar, as compared with a year ago the likelihood that they are realized has diminished significantly as has the potential negative economic impacts for developing countries Assuring growth through increased productivity ... Addressing high unemployment and slack capacity remain priorities for countries in developing Europe and in the Middle East and North Africa. However, the majority of developing countries are operating at or close to full capacity. For them, additional demand stimulus could be counter-productive - raising indebtedness and inflation without significant payoff in terms of additional output. Moreover, while GDP growth should strengthen over the next couple of years, strong growth in developing countries is not guaranteed. To grow rapidly, developing countries will need to maintain the reform momentum that underpinned the acceleration of growth during the 1990s and 2000s. In the absence of additional efforts to raise productivity through structural reforms, investment in human capital, and improved governance and investment conditions, developing country growth may well slow.

Commodity Markets --- Commodity Prices --- Developing Countries --- Economic Outlook --- Finance and Financial Sector Development --- Financial Markets --- Fiscal Cliff --- Forecasts --- GDP --- International Economics and Trade --- Macroeconomic Policy --- Macroeconomics and Economic Growth --- Vulnerability