The European Bank for Reconstruction and Development warned on Thursday that growth forecasts for some emerging markets could be revised down by up to 0.4 percentage points in the upcoming regional economic forecasts in June if energy prices remain high. This warning follows a significant rise in oil prices due to U.S. and Israeli strikes on Iran, which responded by closing the vital Strait of Hormuz.
Last month, the bank projected a growth rate of 3.6% for this year and 3.7% in 2027 for about 40 countries covered by the bank. It noted that the impact of the war on the economy would depend on its duration and the extent of damage to energy infrastructure, according to Reuters.
Details of the Warning
The bank explained that the direct negative effects on GDP growth would be exacerbated by rising energy costs, fertilizer prices, and the prices of essential food items, in addition to supply chain disruptions, declining tourism, and remittances from Gulf Cooperation Council countries. All these factors lead to rising inflation and increased pressures on government budgets, tightening financing conditions in response to worsening inflation.
The bank warned that if oil prices remain above $100 per barrel, along with supply chain disruptions, global inflation could increase by more than 1.5 percentage points.
Context and Background
Countries such as Lebanon, Jordan, Iraq, Egypt, Ukraine, Mongolia, Senegal, Tunisia, Moldova, Kenya, Turkey, and North Macedonia are among the most affected economies, given their reliance on energy and food, and their limited capacity to absorb economic shocks. Egypt, Morocco, and Senegal are also facing significant trade deficits in energy and a notable dependence on oil imports.
On the other hand, Azerbaijan, Iraq, Kazakhstan, Mongolia, and Nigeria show surpluses in oil and gas trade ranging from 11% to 39% of GDP, although the bank pointed to a decrease in production or a halt in the largest Iraqi oil fields.
Consequences and Impact
Russia may achieve unexpected gains from oil, gas, and fertilizer exports, estimated at about 1.5 percentage points of GDP for 2025 for every $10 increase in oil prices, according to the bank's estimates. The bank also indicated that oil prices could reach $180 per barrel if supply constraints from Gulf countries persist, due to the decreased short-term demand elasticity.
The war with Iran is causing widespread disruption in global liquefied natural gas (LNG) prospects, as high prices and damage to Qatar's export infrastructure have raised doubts about the previously expected demand from price-sensitive Asian buyers.
Impact on the Arab Region
Arab countries, especially those heavily reliant on energy imports, face significant challenges due to rising energy prices. Analysts expect that the gas price crisis will lead some countries to reconsider the pace of gas demand growth compared to their previous forecasts, potentially leading to a decline in demand for LNG.
Under these circumstances, Arab governments are expected to take urgent measures to address the repercussions of rising energy prices, including enhancing local renewable energy production and reducing reliance on imports.
In conclusion, the warning from the European Bank highlights the need for urgent measures to address the economic challenges arising from rising energy prices, which could significantly impact economic growth in emerging markets.