MID-EAST BATTERED BY WEAK INTERNAL AND EXTERNAL DEMAND.

Position:No significant improvement in living standards is expected in 2003
 
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Middle Eastern consumers have seen no significant improvement in their living standards in recent years and the situation is not likely to improve much during 2003. Purchasing power in the region is stagnant and weak consumer confidence is undermining household demand for high-end goods and services.

Relations between the United States and Arab nations of the Middle East are at low ebb, and that bodes ill for trade between the two. Through the first three quarters of 2002, trade was off 10 percent year-on-year. The rate of decline should diminish as 2003 progresses, yet there is little likelihood that healthy growth will return this year. An open conflict between the US and Iraq would likely bring further deterioration in both trade and political relations with the West.

Internal demand for goods and services offered by Arab nations will be moribund through 2003. Lack of vitality in Middle Eastern consumption is directly linked to long-term stagnation of real income. During the past quarter century, real per capita income of Arab nations increased an average of about 0.5 percent at a time when the global average rose 1.3 percent. As the oil boom faded over the past decade, prospects for a rebound in earnings faded with it. On average, real wages should experience gains of well under 1 percent for the year.

Weak consumer confidence will cause many households in the region to keep high-end purchases on hold through the upcoming year. Average growth in sales of high-end durables in the region should be below 2 percent year-on-year. Sales in the Gulf Arab nations should fare slightly better than in the northern tier of nations (Iraq, Jordan, Lebanon, and Syria).

The consumer confidence panorama is likely to become bleaker over the next few years. The rate of natural population increase for Arab nations is well over 2 percent, making it one of the fastest growing consumer bases in the world. However, job creation will not keep up with growth of the labor force, contributing to an atmosphere of restlessness and...

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