Middle East

Qatar

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.

25 January 2022

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

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
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What to expect in MENA in 2022

We think that GDP growth in the Gulf will be stronger than most expect this year on the back of rising oil output. Elsewhere, we expect a larger depreciation of the Egyptian pound than most anticipate and, if anything, there is a growing risk of an even sharper adjustment. Meanwhile, Tunisia will continue along the path towards a sovereign default. And bad loans look set to rise in banking sectors in Qatar and the UAE, causing credit conditions to tighten.

Omicron puts a small bump on the road to recovery

December’s batch of whole economy PMIs showed that activity in non-oil sectors in the Gulf softened due to the uncertainty created by the emergence of the Omicron variant. Restrictions have been tightened in recent weeks, but the experience from other countries is that the economic hit may prove short-lived.

Gulf governments to keep fiscal policy tight

Governments across the Gulf have begun to unveil their 2022 budgets and tight fiscal policy remains the order of the day. Saudi Arabia outlined a 6% cut in spending next year that is expected to push the budget into surplus for the first since 2013. And while Oman and Qatar both project small increases in expenditure in 2022, these are set to be more than offset by stronger revenues. The emergence of the Omicron variant has weighed on oil prices in recent weeks and, if we’re right in expecting them to fall further next year, the window that had opened up to loosen the purse strings will close. Tight fiscal policy will hold back recoveries in non-oil sectors, and we suspect that Oman and Bahrain will have to rely on financial assistance from the rest of the Gulf to avoid devaluations and defaults.

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.

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.

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