Middle East

Middle East Economics Weekly

Middle East Economics Weekly

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.

20 January 2022

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 Economics Weekly

OPEC+ meeting, Gulf tightens restrictions, Egypt budget

This week’s OPEC+ meeting turned into a fairly straightforward affair with the group raising output as planned, but if we’re right in expecting oil prices to drop back, the window for governments in the Gulf to loosen fiscal policy will shut. Meanwhile, the emergence of the Omicron variant has prompted the Gulf to tighten restrictions, although South Africa’s experience suggests the ensuing economic impact may be short lived. Elsewhere, Egypt’s budget for FY2022/23 showed officials are set to keep policy tight which will weigh on the recovery.

6 January 2022
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Middle East Economics Weekly

Saudi budget, Fed and the Gulf, Tunisian politics

Saudi Arabia’s 2022 Budget revealed that the government plans to cut spending in order to run a budget surplus for the first time since 2013. But the true fiscal stance is being muddied by an increasing reliance on government entities to drive public investment. Meanwhile, the US Federal Reserve confirmed a hawkish shift on Wednesday. Dollar pegs mean that central banks in the Gulf will have to follow the Fed when it raises interest rates, which will weigh on recoveries in non-oil sectors. And finally, Tunisia’s President Saied this week extended the suspension of parliament for another year, adding to concerns over a lack of action to tackle the country’s worsening public finances. This is our last Weekly of 2021, and the next edition will be published on 6th January.

Middle East Economics Weekly

Iran-JCPOA, Qatar’s budget, UAE working week shift

The seventh round of talks to revive the Iran nuclear deal resumed today, having halted last week, and it appears as though reaching an agreement is some way off. This could put upwards pressure on oil prices and give governments in the Gulf greater scope to avoid tighter fiscal policy. Indeed, Qatar’s 2022 State Budget published this week showed plans to raise spending slightly. Elsewhere, the news that the working week in the UAE will shift is unlikely to have a significant macroeconomic impact, although it does feed into the sense that the UAE is pulling out the stops to make itself an attractive destination for expats and investment.

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.

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.

Middle East Economics Weekly

Tunisia fiscal policy, Egypt’s private sector, COVID-19

Tunisia’s government upwardly revised its 2021 budget deficit target this week which, coupled with growing signs of it making concessions to appease the UGTT labour union, adds to our view that the public finances will continue to deteriorate and a debt restructuring will be needed. Elsewhere, Egypt government announced plans to scale back its involvement in the economy. While encouraging, there are reasons to be sceptical. And finally, COVID-19 vaccine rollouts in parts of North Africa have picked up the pace and the news of the development of an antiviral pill will provide countries with a further tool to add to the arsenal.

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