Middle East

Middle East Economics Weekly

Egypt and UAE inflation, OPEC+, austerity in Algeria

Inflation figures for Egypt showed the headline rate jumped to a 20-month high in September and we think that this will delay a turn towards interest rate cuts. Elsewhere, the UAE emerged from deflation in August amid signs that the property sector has turned a corner. But disappointing news on the number of visitors to the World Expo reinforce our bearish view on the sector. Meanwhile, the rally in oil prices has ratcheted up the pressure on the OPEC+ to raise output quotas, which would most likely involve higher quotas for the Gulf. Finally, Algeria’s turn to fiscal austerity is unlikely to be enough to prevent a sharp devaluation in the coming years.

14 October 2021

Middle East Data Response

Saudi Arabia Consumer Prices (Sep.)

Saudi inflation rose to 0.6% y/y in September and is likely to drift a little higher over the rest of this year. However, we do not envisage a significant pick up in the headline rate and inflation is likely to remain around 1.0-1.5% y/y in 2022-23.

14 October 2021

Middle East Economics Weekly

OPEC+ fallout, Oman’s upgrade, TUI cancellations

The OPEC+ meeting this week triggered a rise in oil prices and, while we expect prices to fall by next year, rising production means that overall oil export revenues for the Gulf economies should increase in 2022. In turn, that will open the window for some governments to loosen fiscal policy. The exceptions to this are Oman and Bahrain. Although Oman had its outlook upgraded by S&P this week, both governments will still need to tighten fiscal policy further. Finally, the decision by travel company TUI to cancelled flights to Tunisia and Egypt until later this month highlights that recoveries in the tourism-dependent economies will be bumpy.

7 October 2021

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

4.8

6.3

3.0

-2.1

3.4

3.3

1.5

1.3

Egypt

0.9

3.9

5.7

1.5

5.0

5.8

5.8

9.2

5.2

4.8

5.0

5.0

UAE

0.5

2.8

3.4

-6.3

2.3

5.5

1.0

-1.9

-2.1

0.0

1.5

1.3

Algeria

0.4

2.8

0.8

-4.9

-0.5

3.8

1.8

2.0

2.4

5.0

6.0

5.5

Morocco

0.2

3.8

2.6

-6.3

9.0

4.0

3.8

0.3

0.7

1.5

2.0

1.3

Qatar

0.2

7.4

-0.4

-3.9

1.5

4.0

2.3

-0.6

-2.6

2.3

3.3

2.5

Kuwait

0.1

1.1

0.4

-8.9

2.5

8.8

1.0

1.1

2.1

3.3

2.3

2.3

Oman

0.1

4.1

-0.8

-6.0

0.3

4.8

3.3

0.1

-0.8

1.8

1.3

0.8

Tunisia

0.1

2.3

1.0

-8.6

3.5

4.3

3.8

6.7

5.6

5.5

6.3

5.8

Jordan

0.1

3.2

2.5

-1.6

2.5

4.0

3.5

0.8

0.3

2.3

1.5

1.3

Lebanon

0.1

3.4

-6.7

-40.0

-20.0

12.0

2.5

2.9

84.9

185.0

140.0

65.0

Bahrain

0.1

3.8

1.8

-5.1

2.8

3.8

2.5

1.0

-2.3

-0.5

1.8

1.5

Mid. East & North Africa2

4.0

3.7

1.8

-4.4

3.3

5.7

3.3

1.5

2.2

3.1

3.0

2.8

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


Egypt and UAE inflation, OPEC+, austerity in Algeria

Middle East Economics Weekly

17 October 2021

Our view

Economic recoveries in the Gulf appear to be strengthening as their successful vaccine rollouts have allowed governments to lift most restrictions. The unwinding of OPEC+ production cuts will provide a further boost over the coming quarters and our GDP growth forecasts for the Gulf generally lie above the consensus. In contrast, activity outside of the Gulf remains relatively subdued as key tourism sectors continue to struggle. Egypt’s recovery will also be held back by tight fiscal policy and we think that the central bank will respond by cutting interest rates next year. Elsewhere, the World Expo got underway in Dubai this month which will provide a short-term boost to the economy. But, as we have long warned, there is a significant risk that the Expo leaves higher rates of overcapacity in key sectors in its wake that ultimately re-ignite concerns about the debts of Dubai’s government-related entities.

Latest Outlook

Middle East Economic Outlook

A two-speed recovery

Strong COVID-19 vaccine rollouts in most of the Gulf and Morocco mean that remaining virus restrictions should be lifted by the end of this year, providing a boost to recoveries that, in the Gulf, will be turbo-charged by the recent OPEC+ deal to raise oil output. Elsewhere, though, vaccination programmes are progressing more slowly and fresh virus outbreaks will remain a key threat to the outlook. At the same time, many of these economies will suffer as international tourists return only slowly and officials turn back to fiscal consolidation in order to address high public debt-to-GDP ratios.

21 July 2021