Middle East

Saudi Arabia

What does the energy price surge mean for the Gulf?

Higher oil and gas revenues are likely to prompt a modest shift to looser fiscal policy in the large Gulf economies, although Bahrain and Oman will still need to stick to austerity. Meanwhile, if OPEC+ were to raise production quotas more quickly in response to the surge in global energy prices, that would pose a major upside risk to our above-consensus GDP growth forecasts.

20 October 2021

Gulf to outperform

Economic recoveries in the Gulf will continue to gather pace over the coming year on the back of successful vaccine rollouts and higher oil output, and our GDP growth forecasts lie above the consensus. Outside the Gulf, though, recoveries are likely to be slower, particularly in the more tourism-dependent economies. We think a sovereign default in Tunisia is more likely than not, and we have long-standing worries about public debt in Bahrain and Oman as well as Dubai’s corporate debts.

19 October 2021

Saudi Arabia Consumer Prices (Sep.)

Saudi inflation rose to 0.6% y/y in September and is likely to drift a little higher over the rest of this year. However, we do not envisage a significant pick up in the headline rate and inflation is likely to remain around 1.0-1.5% y/y in 2022-23.

14 October 2021
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OPEC+ fallout, Oman’s upgrade, TUI cancellations

The OPEC+ meeting this week triggered a rise in oil prices and, while we expect prices to fall by next year, rising production means that overall oil export revenues for the Gulf economies should increase in 2022. In turn, that will open the window for some governments to loosen fiscal policy. The exceptions to this are Oman and Bahrain. Although Oman had its outlook upgraded by S&P this week, both governments will still need to tighten fiscal policy further. Finally, the decision by travel company TUI to cancelled flights to Tunisia and Egypt until later this month highlights that recoveries in the tourism-dependent economies will be bumpy.

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.

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.

Lebanon finally gets a government, Saudi education plans

The news that Lebanon finally formed a new government this week came as welcome relief amid the country’s economic, political and humanitarian crises. But there are still plenty of big hurdles to clear before the country emerges from its crisis. Elsewhere, the Saudi government is set to launch reform of the Kingdom’s education sector – an area of Vision 2030 we have long argued had been lagging.

Saudi Arabia Consumer Prices (Aug.)

Saudi inflation edged down to 0.3% y/y in August and is likely to remain around this level over the coming months. We think that inflation will pick up to 1.0-1.5% y/y in 2022-23, although the possibility of a VAT cut presents a downside risk.

15 September 2021
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