Oil price plunge and Saudi austerity

The plunge in oil prices over the past week won’t result in balance sheet strains in the Gulf economies, but it does strengthen our view that governments in parts of the region, most notably Saudi Arabia, will resume fiscal austerity.
William Jackson Chief Emerging Markets Economist
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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 Data Response

Saudi Arabia Consumer Prices (Dec.)

Saudi inflation edged up to 1.2% y/y in December and we think that the headline rate will drift a little higher over the first half of this year before stabilising at around 1.0-1.5% over the rest of 2022 and 2023. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

More from William Jackson

Latin America Data Response

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.

2 June 2021

Latin America Data Response

Brazil GDP (Q1 2021)

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

Emerging Markets Trade Monitor

A closer look at the EM export boom

EM exports are set to hit a new high in Q2, which will help to support economic growth, particularly in East Asia where virus cases are hitting domestic economies. While EM exports are likely to come off their current highs, they will probably stay at elevated levels throughout the rest of the year.

27 May 2021
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