Middle East

Qatar

Whole Economy PMIs (Sep.)

September’s batch of whole economy PMIs showed that recoveries in non-hydrocarbon private sectors in Saudi Arabia and Qatar gathered pace as domestic activity strengthened on the back of easing virus restrictions. In contrast, recoveries in Egypt and the UAE appear to have eased a touch at the start of Q3.

5 October 2021

Rise in inflation to prove short-lived

Inflation in many economies in the region has risen to multi-year highs in recent months. In general, this has been driven higher by a combination of unfavourable base effects from the pandemic, as well as some re-opening inflation and the effects of rising global commodity prices. In Oman, those effects have been compounded by the introduction of VAT in April. Most of the drivers appear to be transient and inflation is likely to slow again over 2022-23 and, in Egypt, this is likely to bring interest rate cuts back on to the agenda. One key exception is Lebanon, where inflation is already running at over 100% and will remain elevated amid the effects of the collapse in the pound and the repeal of subsidies.

28 September 2021

Qatar gas, Morocco FX purchases, Tunisian turmoil

The continued rise in global gas prices will provide a substantial boost to Qatar's export revenues and provide scope for policymakers to loosen the purse strings to support the economic recovery. Elsewhere, moves by Morocco’s central bank suggest that the currency could appreciate further. Finally, Tunisia’s President Kais Saied's moves on Wednesday add to signs that his power grab is leading to a one-man rule. This will reinforce concerns about the future of Tunisia’s democracy and the government’s capacity to service its debts.

23 September 2021
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Gulf countries move to lift containment measures

High levels of vaccine coverage have paved the way for policymakers across the Gulf to lift measures to contain COVID-19 over the past month or so. The UAE remains ahead of the pack in the vaccine race and has started to deliver booster jabs in recent weeks. Vaccine rollouts elsewhere in the Gulf have gathered pace and most countries have now inoculated upwards of 60 out every 100 people with at least one dose. Easing restrictions, coming alongside rising oil production and higher oil prices providing scope for fiscal policy to be loosened, means that economic recoveries in the Gulf are likely to gather pace over the rest of this year and into 2022.

Whole Economy PMIs (Jul.)

July’s whole economy PMIs painted a mixed picture with recoveries in Qatar and the UAE’s non-oil sectors picking up pace, while those in Egypt and Saudi Arabia softening. Strong vaccine rollouts and the relaxation of virus-related measures should pave the way for a strong recovery in the Gulf economies over the rest of this year whereas Egypt’s recovery is likely to lag behind.

Unrest in Tunisia, Gulf restrictions, Egypt fuel hike

Tunisia’s President Kais Saied’s power grab on Sunday and moves over the course of this week will reinforce concerns about the future of democracy in the country and the likelihood of a sovereign debt restructuring has increased further. Elsewhere, the Gulf countries have taken a strong stance on the need for proof of COVID-19 vaccinations to access domestic services and travel internationally, although we doubt this will have a major impact on recoveries. Finally, the hike in Egyptian fuel prices this week which will push up inflation and delay the start of a monetary easing cycle
 

A two-speed recovery

Strong COVID-19 vaccine rollouts in most of the Gulf and Morocco mean that remaining virus restrictions should be lifted by the end of this year, providing a boost to recoveries that, in the Gulf, will be turbo-charged by the recent OPEC+ deal to raise oil output. Elsewhere, though, vaccination programmes are progressing more slowly and fresh virus outbreaks will remain a key threat to the outlook. At the same time, many of these economies will suffer as international tourists return only slowly and officials turn back to fiscal consolidation in order to address high public debt-to-GDP ratios.

Higher oil prices to help narrow twin deficits

The price of oil has continued to rise and will help to improve balance sheets in the Gulf. With oil prices at $75pb, all Gulf economies with the exceptions of Bahrain and Oman are likely to be running current account surpluses, having run deficits in 2020. Budget deficits will have narrowed too and this may open the door to looser fiscal policy. Indeed, there have been signs recently that policymakers in Kuwait, Oman and Saudi Arabia are moving in this direction. However, we expect that the price of oil will fall later in the year, meaning that the window to raise spending may be limited.

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