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.
James Swanston Middle East and North Africa Economist
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Middle East Economic Outlook

Gulf to drive a pick-up in regional growth in 2022

The recovery across the Middle East and North Africa is likely to gather pace this year, due in large part to the Gulf where rising oil output will cause GDP growth to pick up to rates well above current consensus expectations. Recoveries elsewhere are likely to lag behind amid a slow return of tourists and fiscal austerity. In Tunisia, though, fiscal consolidation is unlikely to be enough to avoid a sovereign default. Elsewhere, we think that concerns about Dubai’s corporate debt could resurface this year too.

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Oil prices, UAE drone attack, Gulf monetary tightening

The recent upwards revision to our oil price forecast means that the window for looser fiscal policy in the Gulf will remain open for a little longer than we anticipated. One of the factors driving oil higher this week was the Houthi drone strike in the UAE, which highlighted the risks to the Emirates’ recovery – particularly the tourism sector. Finally, central banks in the Gulf will have to follow the Fed in tightening monetary policy – which now seems likely to start in March. That will add a headwind to non-oil sectors.

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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

More from James Swanston

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Saudi economy set for a strong end to the year

The economic recovery in Saudi Arabia has picked up pace and should end the year on a strong note. The emergence of the Omicron variant has clouded the outlook, but for now we expect economic growth in the Kingdom to strengthen in 2022 on the back of rising oil output.

2 December 2021

Middle East Economics Weekly

SPR release, Turkey exposure, Egypt price adjustments

The US-led release of oil reserves earlier this week did little to bring down the price of oil as President Biden would have hoped and, if anything, could provoke OPEC+ to raise oil production more slowly than its current plans imply. Even so, the move is unlikely to drastically alter the outlook for the Gulf economies. Meanwhile, the spillovers from Turkey’s currency crisis are likely to be contained, although Tunisia's poor external position leave it vulnerable to financial contagion. Finally, Egypt’s government has announced it will cut electricity tariffs which could pose a threat to the fiscal position further down the line.

25 November 2021

Middle East Economics Update

Tunisia’s fragile external position poses risk to dinar

Tunisia’s external position is in a dire state and policymakers have little ammunition available to defend the dinar. We think the currency will depreciate by more than 10% against the euro by the end of next year and the risks lie heavily to the downside.

25 November 2021
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