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Middle East

Middle East Chart Book

Region’s financial markets routed

Risk-off sentiment and the sell-off in EM financial markets have hit the Middle East and North Africa hard. Having been the top regional performer earlier in the year, the MSCI Arabian Markets Index has fallen by nearly 20% since mid-April. Sovereign dollar bond spreads have widened across the board, particularly in Egypt and in Tunisia – the latter appears to be hurtling toward a default. With developed market central banks set to deliver more hikes over the rest of this year and next, we suspect that equities in the Middle East and North Africa (and EMs more generally) will continue to struggle. Meanwhile, sovereign dollar bond spreads could widen further, and currencies in North Africa are likely to come under greater pressure.

24 June 2022

Energy Update

OPEC+ to change tack from September

Whilst OPEC+ has been failing to meet its production quotas in recent months, it will technically finish unwinding its pandemic-related supply cuts come September. We think OPEC+ will then move to a more liberal approach and allow the few members with spare capacity to produce more. This is one reason why we forecast that the Brent oil price will ease back to around $100 per barrel by year end. In view of the wider interest, we are also sending this Energy Update to clients of our Middle East and North Africa service.

23 June 2022

Middle East Economics Weekly

OPEC+ policy, Egypt’s orthodox shift and FY22/23 budget

Next Thursday's OPEC+ meeting may drop some hints about the future for the group's oil output beyond September and we think that quotas are likely to be lifted. If that’s the case, the Gulf economies would be major beneficiaries. Elsewhere, comments from Egypt’s finance minister suggest that officials are becoming more receptive to a weaker pound, adding to hopes that the move to a more flexible exchange rate is the real deal. A weak currency is a concern given the growing sovereign FX debt burden, but the country’s FY2022/23 budget passed this week does at least highlight a commitment to fiscal austerity.

23 June 2022

Key Forecasts


OPEC+ policy, Egypt’s orthodox shift and FY22/23 budget

Middle East Economics Weekly

26 June 2022

Our view

The combination of rising oil production and the increasing likelihood of looser fiscal policy underpin our above-consensus GDP growth forecasts for the Gulf economies, with Saudi Arabia set to record its fastest growth this year in nearly two decades. Elsewhere, spillovers from the war in Ukraine have exacerbated external strains, particularly in Tunisia and Egypt. If the Tunisian dinar weakens, as we expect, this will accelerate the descent toward a sovereign default. In Egypt, the devaluation of the pound in March will help to correct external imbalances but at the cost of rising inflation. We expect the central bank to hike interest rates by a further 150bp, to 12.75%, by the end of this year which is more tightening than the consensus currently expects.

Latest Outlook

Middle East Economic Outlook

Gulf leads the way as Ukraine war drives divergence

The Gulf economies will be major beneficiaries from higher energy prices and our growth forecasts sit far above the consensus. Outside the Gulf, higher inflation and tighter fiscal policy will weigh on growth, while balance sheet problems are likely to build. In Egypt, despite the recent devaluation, we think the currency will need to weaken further in order to stabilise the external position. One consequence is that interest rates will be raised – and by more than most expect. Elsewhere, we think that Tunisia’s government will ultimately turn to default.

25 April 2022