Middle East

Middle East Economics Weekly

Oil and Gulf fiscal policy, Egypt joins GBI-EM, Tunisia

We think that the recent rally in oil prices is likely to be short lived and, as prices fall back, the window for governments in the Gulf to loosen fiscal policy will shut. Elsewhere, Egypt’s inclusion in JP Morgan’s GBI-EM bond index at the end of the month could boost capital inflows, but also cause external imbalances to increase. Finally, despite some support from Saudi Arabia this week, the Tunisian government will still need to pass much-needed fiscal consolidation to repair its balance sheets. Otherwise, it will continue to edge closer to a sovereign default.

13 January 2022

Middle East Data Response

Saudi Arabia Consumer Prices (Dec.)

Saudi inflation edged up to 1.2% y/y in December and we think that the headline rate will drift a little higher over the first half of this year before stabilising at around 1.0-1.5% over the rest of 2022 and 2023. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

Middle East Economics Update

What to expect in MENA in 2022

We think that GDP growth in the Gulf will be stronger than most expect this year on the back of rising oil output. Elsewhere, we expect a larger depreciation of the Egyptian pound than most anticipate and, if anything, there is a growing risk of an even sharper adjustment. Meanwhile, Tunisia will continue along the path towards a sovereign default. And bad loans look set to rise in banking sectors in Qatar and the UAE, causing credit conditions to tighten.

12 January 2022

Key Forecasts

Table 3: GDP & Consumer Prices (% y/y)

Share of

World 1

2010-19

Ave.

GDP

Consumer Prices

2019

2020e

2021

2022

2023

2019

2020

2021

2022

2023

Saudi Arabia

1.2

3.5

0.3

-4.1

2.5

7.3

3.8

-2.1

3.4

3.3

1.3

1.3

Egypt

0.9

3.9

5.7

1.5

4.8

5.8

5.8

9.1

5.1

5.2

5.3

5.0

UAE

0.5

2.8

3.4

-7.0

2.5

5.8

1.8

-1.9

-2.0

0.3

1.5

1.3

Algeria

0.4

2.8

0.8

-4.9

3.8

2.5

0.8

2.0

2.4

6.3

5.8

5.5

Morocco

0.2

3.8

2.6

-6.3

7.3

4.8

4.0

0.2

0.7

1.5

1.8

1.8

Qatar

0.2

7.4

-0.4

-3.6

1.3

3.8

3.5

-0.8

-2.6

2.3

3.3

2.5

Kuwait

0.1

1.1

-0.6

-8.9

2.0

9.5

1.8

1.1

2.1

3.0

2.3

2.3

Oman

0.1

4.1

-0.8

-6.5

0.3

5.3

3.5

0.1

-0.7

1.3

1.0

0.8

Tunisia

0.1

2.3

1.5

-9.3

2.3

3.8

3.8

6.7

5.6

5.7

6.3

5.8

Jordan

0.1

3.2

2.0

-1.6

2.3

3.5

3.5

0.3

0.4

1.5

1.0

1.3

Lebanon

0.1

3.4

-7.2

-40.0

-20.0

10.0

10.0

2.9

84.9

153.5

145.0

65.0

Bahrain

0.1

3.8

2.0

-4.6

3.0

3.8

2.5

1.0

-2.3

-0.5

2.3

1.5

Mid. East & North Africa2

4.0

3.7

1.8

-4.5

2.9

5.9

3.7

1.5

2.2

3.1

2.9

2.8

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2020, PPP terms (IMF estimates). 2) Regional inflation aggregate excludes Lebanon.


Oil and Gulf fiscal policy, Egypt joins GBI-EM, Tunisia

Middle East Economics Weekly

19 January 2022

Our view

Economic recoveries in the Gulf will continue to gather pace over the next year or so on the back of successful vaccine rollouts and higher oil output, and our GDP growth forecasts are above consensus. At the same time, even as oil prices fall back over the next couple of years, rising oil production should more than offset this and oil export revenues will be higher in many Gulf economies in 2022. This could open the door for the likes of Saudi Arabia, the UAE, and Qatar to loosen fiscal policy to support recoveries. However, Bahrain and Oman will have to tighten policy further to repair balance sheets and rely on financial support from the Gulf to help service their debts and keep dollar pegs intact. Elsewhere, our long-held view that the risks of Tunisia’s government undertaking a debt restructuring are increasing as the new cabinet has showed no sign of attempting to tackle the deteriorating public finances.

Latest Outlook

Middle East Economic Outlook

Gulf to outperform

Economic recoveries in the Gulf will continue to gather pace over the coming year on the back of successful vaccine rollouts and higher oil output, and our GDP growth forecasts lie above the consensus. Outside the Gulf, though, recoveries are likely to be slower, particularly in the more tourism-dependent economies. We think a sovereign default in Tunisia is more likely than not, and we have long-standing worries about public debt in Bahrain and Oman as well as Dubai’s corporate debts.

19 October 2021