Low oil prices hitting home

Oil prices have been low for some time now, but the past month has brought further evidence that this new reality is starting to hit home in energy-exporting frontier markets. Recently-released data showed that growth in Saudi Arabia’s economy slowed to 1.5% y/y in Q1, much weaker than the expansion of 3.4% recorded in 2015. The Kingdom’s non-oil private sector grew at its weakest pace in a quarter of a century. At the same time, the Nigerian and Kazakh economies contracted by 0.4% y/y and 0.1% y/y respectively (following growth of 2.7% and 1.6% in 2015). And last month Nigeria’s central bank was forced to devalue the naira.

The picture is unlikely to get much better any time soon. While we expect oil prices to edge up over the coming years, they are likely to remain far below the US$100pb-plus levels seen for much of the past decade. As a result, fiscal consolidation will have to continue in the Gulf countries for many years to come, keeping growth there subdued. The impact of Nigeria’s devaluation will start to feed through into the wider economy over the coming months. Elsewhere, we still think that there’s a good chance that Venezuela will default on its debt by the end of this year.