The Gulf economies are set for their steepest contraction since the early 1980s this year. The closure of the Strait of Hormuz has led to sharp falls in hydrocarbon production, even in those countries able to divert some of their exports via pipelines. Non-oil activity is suffering too, particularly in those parts of the economy most reliant on tourists or footfall.
The rest of the MENA region will endure softer growth and higher inflation. Egypt’s policy response, especially allowing the pound to fall, will aid the adjustment there. We are most concerned about Tunisia, where the risk of a disorderly balance of payments crisis and sovereign default is growing.
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