Oil output cuts are driving a sharp slowdown in economic growth across the Gulf. The hit to volumes will more than offset the rebound in oil prices but, for now at least, fiscal policy is being kept loose and this will continue to support strong non-hydrocarbon growth. In the rest of the region, ongoing balance of payments strains will add to downward pressure on currencies and result in tighter fiscal and monetary policy. We think a sovereign default in Egypt will be avoided, but not in Tunisia.
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