Diversified economies in the Arab world, such as Saudi Arabia and the United Arab Emirates, are likely to have a smaller contraction in 2020 as a result of COVID-19 pandemic and a moderate recovery in 2021, a new research report has revealed.

The research paper – Macroeconomic impact of Covid-19 on the Arab world – published by TRENDS Research & Advisory, claims that the coronavirus outbreak is expected to be severe for the oil-exporting countries, especially the less diversified ones, such as Algeria and Iraq.

“The loss of oil revenues, the reversal of capital flows, the negative impact on workers remittances, the slowdown of the world economy and the collapse of activities like tourism and international trade are all possible sources of weaknesses for the majority of the Arab economies during the short term and possibly the medium term,” said the paper.

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Quoting the IMF forecast, where a baseline scenario suggests the possibility of the pandemic fading in the second half of 2020 and containment efforts gradually unwinding, the paper claims that the inflation rates are expected to reflect the slowdown of the global economy to some degree.

The paper also says that for countries in the MENA region, the government deficit is expected to rise from an average of -3.4 percent of GDP in 2019 to -10.7 percent of GDP in 2020 and that a major reason for the deteriorated government balance is the major drop in global oil prices.

“These negative impacts could be reversed in the short to medium term if the global fight against the spread of Covid-19 started to reap fruits soon, but the recovery and the restoration of internal and external imbalances could take a long time if the pandemic persists and/or resurge again in the near future,” said the report.