Western Asian countries maintained their fourth consecutive year of robust growth as a result of rising oil prices in the first half of 2006. But the surge in oil export revenues will temper in 2007, and growth in the ESCWA region (excluding Egypt) will likely moderate from 5.8 percent in 2006 to 4.9 percent in 2007, according to a new UN report.

The World Economic Situation and Prospects 2007 launched yesterday says that the overall regional gains, however, mask the growth disparities within the region as polarized development has continued – growth in the Gulf Cooperation Council (GCC) economies was further spurred by the oil market momentum, while those economies impacted by conflict lost even more skilled people, investment, potential incomes, capital, and welfare. Instability in Iraq and the Occupied Palestinian Territories, accompanied by the mid-year Lebanese-Israeli conflict, undermined growth prospects in those economies. In Lebanon, the robust growth registered in the first six months of the year was abruptly halted by the conflict, leading to a decline in output in the rest of 2006. But the UN report says reconstruction has moved rapidly, and economic growth is expected to rebound in 2007, provided no further political instability emerges.

Ninety (90) per cent of Western Asia’s oil-export revenues in 2006 were generated by Gulf Cooperation Council (GCC) economies (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) while Iraq, the Syrian Arab Republic and Yemen contributed 10 per cent, despite having significantly larger populations. Per capita income in the GCC economies dwarfs that of the more diversified economies in the region (Egypt, Jordan, Lebanon, the Syrian Arab Republic and Yemen) by a factor of 10, a rift that has steadily been increasing since 2002.

Rising household incomes and corporate profits in the GCC countries, says the UN report, have created positive spillover effects to the other economies in the region through tourism, workers remittances and FDI. Quarter to quarter, Jordan’s tourism receipts rose by 16.1 per cent in the second quarter of 2006, and worker remittances remained buoyant at 51 per cent of total Jordanian exports for 2005 and the first half of 2006. In Yemen, workers remittances reached $1.3 billion in 2005, representing 20.5 per cent of total exports. In general, however, these spillover effects from oil exporting to oil-importing countries seem to be weakening.

The strong growth in the region has, until now, had little impact on reducing the high rates of unemployment, especially among youth. Rapid population and labour force growth underpinned by increasing female participation rates, burgeoning youth cohorts and the steady stream of labour migrants to the GCC countries have caused excess labour supplies. In Jordan, official unemployment rates fell slightly from 14.8 to 14.4 percent between 2005 and 2006. Lebanon’s vibrant tourism sector and industry was hit hard by the war, but reconstruction efforts should generate greater employment over the outlook period.

Although there has been some diversification into other energy production, industrial diversification in the GCC countries has been limited. Diversification would reduce dependence on volatile oil prices, form a basis for more sustainable growth and strengthen the link between economic growth and employment generation.

In the oil exporting economies the expansion of domestic credit and favourable mortgage terms have acted as a catalyst for substantial investment in real estate and equity markets and have been a significant factor in demand-pull inflation. At the same time, however, lagged public expenditures and the accumulation of foreign reserves helped to contain inflation except in Qatar and the United Arab Emirates. In the oil-importing economies, however, inflation grew more significantly, as these economies lacked the fiscal space to limit the pass-through of higher oil prices onto the overall price level.

The report finds that the oil-exporting countries have further increased fiscal surpluses, now adding up to about 20 per cent of collective GDP. Saudi Arabia’s budget surplus doubled from $28.5 to $57.1 billion between 2005 and 2006 and on average, oil exporters have been saving about two thirds of increased oil revenues by adding to foreign-exchange reserves and oil-stabilization funds, as well as by paying down domestic public debt.

Much of the large surpluses of major Western Asian oil producers, such as Saudi Arabia, have been channeled abroad - particularly to the United States. The UN suggests that these countries should play a larger role in agreements to reduce global imbalances, along with other major players including China and the Russian Federation.

For interviews or more information, contact the Development Section of the UN Department of Public Information through Newton Kanhema, 1-212-963-5602, kanhema@un.org or Oisika Chakrabarti, 212.963.6816, chakrabarti@un.org

WORLD ECONOMIC SITUATION AND PROSPECTS is produced at the beginning of each year by the UN Department of Economic and Social Affairs (UN DESA), the United Nations Conference for Trade and Development (UNCTAD) and the five United Nations regional commissions (Economic Commission for Africa (ECA), Economic Commission for Europe (ECE), Economic Commission for Latin America and the Caribbean (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP), and Economic and Social Commission for Western Asia (ESCWA)).

WORLD ECONOMIC SITUATION AND PROSPECTS 2007 (Sales No.E.07.II.C.2, ISBN 978-92-109153-3) from United Nations Publications, Two UN Plaza, Room DC2-853, Dept. PRES, New York, NY 10017 USA, Tel. 800-253-9646 or 1-212-963-8302, Fax. 1-212-963-3489; E-mail:publications@un.org; or Section des Ventes et Commercialisation, Bureau E-4, CH-1211, Geneva-10, Switzerland, Tel, 41-22-917-2614, Fax. 41-22-917-0027, E-mail:unpubli@unog.ch; Internet: http://www.un.org/publications.