Economic impact of coronavirus not easing up

The rapid spread of the coronavirus in the region means that plans to lift lockdowns have come later than in many other EMs and the damaging economic effects of social distancing have persisted. The Gulf economies have also suffered from the effects of lower oil prices, although pressure on dollar pegs has eased as policymakers have stepped up fiscal austerity measures. Elsewhere, the shutdown of tourism sectors and a collapse in external demand has taken its toll on North Africa, prompting Egypt, Morocco, and Tunisia to turn to the IMF. The economic turmoil in Algeria and Lebanon has only got worse and, with no financial support in place, even sharper and more disorderly adjustments remain a key risk.
William Jackson Chief Emerging Markets Economist
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Energy market poses downside risk to the Gulf

OPEC+ left the door open last week to change its oil output policy before the next meeting and, if output is raised more slowly or not at all, this would knock GDP growth back mechanically in the Gulf – plausibly by around 0.5%-pts next year. At the same time, if oil prices drop further than we expect, Oman and Bahrain will have to tighten fiscal policy even further and probably rely on further financial assistance from other Gulf countries.

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Omicron, tourism and the oil market

Low vaccine coverage and large tourism sectors mean that the non-Gulf economies are particularly vulnerable to the emergence of the Omicron variant. Meanwhile, the drop in oil prices and the likelihood that OPEC+ raises oil output more slowly than previously envisaged has increased the downside risks to our GDP growth forecasts for the Gulf.

2 December 2021

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Brazil Industrial Production (Apr.)

The worse-than-expected 1.3% m/m decline in Brazilian industrial production in April is likely to be followed by a partial recovery last month. That said, the latest surveys suggest that activity in the industrial sector hasn’t picked up to the same extent as other parts of the economy.

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The 1.2% q/q expansion in Brazil’s GDP suggests that the economy held up well during the country’s second virus wave and more timely figures point to a rapid recovery from the more recent third wave. These figures will keep the central bank on track to hike the Selic rate by a further 75bp (to 4.25%) when it meets in June and it looks increasingly likely that it will flag another 75bp hike in August too.

1 June 2021

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27 May 2021
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