I.1. The Ukraine War: Potential heterogenous impacts on the region adding to uncertainty

CHAPTER I. RECOVERY UNDER UNCERTAINTY

Chapter I Takeaways

• The World Bank estimates that MENA’s regional GDP expanded by 3.3 percent in 2021 and forecasts it to grow by 5.2 percent in 2022. • In 2022, eleven out of 17 countries in the region will not be able to recover to their pre-pandemic standard of living. • The recovery is expected to be faster for oil exporters than oil importers in the region as energy prices rose in 2021 and spiked after the onset of the Ukraine war. • Forecasts for 2022 remain fluid due to uncertainty caused by the pandemic, the tightening of global monetary policy, and the Ukraine war. • The region is facing considerable inflationary pressures due to global inflation associated with disruptions caused by the pandemic, commodity price inflation accelerated by the Ukraine war, and currency depreciations in some countries.

The Ukraine war poses significant challenges to many economies in the MENA region. The ensuing food price rises are likely to increase food insecurity in the region. Tourism sectors, already battered by the pandemic, may yet again suffer from the conflict. However, net oil exporters in the region face improving prospects due to the rise in energy prices, although household budgets across the region will be strained because of the rise in both energy and food prices. The COVID-19 pandemic has yet to end. The MENA region recently witnessed a large spike of cases in February 2022, possibly driven by the new Omicron variant, but information emanating from the region remains unreliable. However, rising COVID-19 cases in Europe and China suggests that the MENA region (and the global economy) may not be out of the woods yet. The region’s economic recovery remains uncertain due to the unpredictable course of the pandemic, the tightening of global monetary policy and, most recently, the Ukraine war.

I.1. The Ukraine War: Potential heterogenous impacts on the region adding to uncertainty

The large-scale Ukraine war in late February has rattled the global economy and further heighten uncertainty. Although the situation remains highly fluid, the human consequences are appalling.

Ì Potential channels of impact on the global economy

The crisis has disrupted supply chains, further fueling global inflation that had already reached historic levels in 2021 and added turmoil in already tightening global capital markets. The magnitude and persistence of the shock is highly uncertainty, and likely very sensitive to how the crisis unfolds. According to the International Food Policy Research Institute (IFPRI), Russia and Ukraine together exported more than a third of global wheat exports during 2018–2020. The war caused wheat prices to jump significantly with much volatility (see figure I.1). Prices of other food commodities have also risen since the conflict, due to dramatic reduction in global supply of food from both Russia and Ukraine.