Gulf tightening the purse strings

Fiscal plans announced across the Gulf over the past month suggest that governments will keep policy tight, a key reason why we think that economic growth will disappoint this year. The Saudi 2020 budget outlined that expenditure would be cut by nearly 10% over the coming years. Similarly, in Qatar and Kuwait, 2020 budgets showed little increase in spending. Oman’s new Sultan Haitham has been quick to announce the imposition of a value-added tax from 2021 to repair the country’s weak balance sheets. The one exception to all of this is the UAE, where the authorities are set to implement fiscal stimulus in order to support the struggling economy.
William Jackson Chief Emerging Markets Economist
Continue reading

More from Middle East

Middle East Economics Update

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.

8 December 2021

Middle East Economics Update

Gulf ends 2021 strongly but Omicron a key threat

November’s batch of whole economy PMIs showed that non-oil sectors in the Gulf continued their recent strong trend, but the emergence of the Omicron variant – and threat of tighter restrictions – presents a clear downside risk to our above-consensus 2022 growth forecasts.

7 December 2021

Middle East Economics Weekly

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

More from William Jackson

Emerging Europe Economics Update

CBRT still treading cautiously

The statement accompanying today’s decision by the Turkish central bank (CBRT) to leave its policy rate at 19.00% suggests that policymakers are (for now) standing up to political pressure to lower interest rates. But we still think that an easing cycle is likely to begin in July.

17 June 2021

Latin America Economics Update

Brazil: Copom’s inflation worries growing

The hawkish statement from the Brazilian central bank meeting (at which the Selic rate was raised by 75bp to 4.25%) indicates that policymakers are more confident in the economic recovery but also more worried about energy inflation than we had anticipated. With Copom now giving a clear steer that the Selic rate will return to its neutral level (rather than stay below neutral), we expect that the policy rate will be raised to 6.50% by year end (previously 5.50%).

17 June 2021

Latin America Economics Weekly

Peru turmoil, Chile’s lockdown, hawks & doves

Pedro Castillo’s victory in Peru’s presidential election caused local markets to tumble, but if his more moderate post-election comments are borne out in policymaking, asset prices are likely to recover some lost ground. In Chile, while the latest lockdown has caused the near-term outlook to worsen, we retain a positive view on the economy’s growth prospects. The central bank’s forecasts published this week show that it is of a similar opinion (and that rates will rise this year as a result – in line with our projections). Elsewhere, the news that Mexico’s finance minister will take over as central bank governor next year adds weight to our view that Banxico bank will tolerate higher inflation.

11 June 2021
↑ Back to top