OPEC+ meeting, Oman loan, vaccine latest - Capital Economics
Middle East & North Africa Economics

OPEC+ meeting, Oman loan, vaccine latest

Middle East Economics Weekly
Written by James Swanston
The OPEC+ meeting could see the group opt to roll over its production cuts into April (rather than easing quotas) which would push back the recovery in GDP growth in the Gulf. Even so, the drag from the fall in oil output should still ease dramatically in the coming months. Elsewhere, while the loan secured by Oman’s government will help to meet the large public sector financing needs, the authorities are still likely to rely on financial assistance from the Gulf. Finally, vaccination programmes in the UAE, Bahrain and Morocco have pulled ahead, but roll-out has been worrying slow elsewhere.

OPEC+ meeting unlikely to spring a surprise

The OPEC+ meeting later today could see the group opt to roll over its production cuts into April (rather than easing quotas) which would push back the recovery in GDP growth in the Gulf’s oil producers a little. Even so, the drag from the fall in oil output would still ease significantly in the coming months.

Sources close to OPEC+ told Reuters that several members were pushing for the current quotas to be rolled over to April. With key members like Russia pushing for an increase in production and Saudi Arabia possibly set to reverse its voluntary 1mn bpd cut, we expect the group to push through a small increase in production quotas. (For more, see our Energy Service.) Regardless of the outcome, though, oil sectors in the Gulf will begin to contribute positively to GDP from May when the large drop in oil production last year falls out of the annual comparison.

This, and the rise in the price of oil that we expect, will help to narrow current account and budget deficits this year. However, we think this gain will be short-lived as supply is ramped up and growth in demand slows by next year. We think the price of Brent crude will drop back to around $55pb by end-2022 (from our end-21 forecast of $70pb). As a result, governments across the Gulf are likely to keep fiscal policy tight which will continue to provide a headwind to the economic recovery.

Oman: loan to ease country’s financial burden

Oman’s government manged to secure a $2.2bn loan with several international banks this week. This follows a $1bn loan from Qatar in October and the issuance of $3.25bn of international bonds this year. Even so, this still falls well short of the country’s total public sector financing needs of around $20bn. Accordingly, the government will keep fiscal policy tight – spending will be cut by 14% this fiscal year and a 5% VAT rate will be introduced next month. And the authorities are likely to rely on further financial assistance from the rest of the Gulf. We expect this to be forthcoming and recent bond prospectuses have confirmed discussions with the Gulf are already underway.

Vaccinations… the good, the bad, and the ugly

COVID-19 vaccination programmes have got underway in all countries in the region, but there is a sharp divergence in the pace of the rollout that will translate into a varied pace of recovery too.

The UAE and Bahrain lead the way in the region. Figures released this week show that the UAE has fully vaccinated around a quarter of its population and over a third have received at least one dose. Admittedly, the rate of daily vaccinations has slowed, but the UAE is still on track to meet its target of 50% coverage by end-Q1. In Bahrain, 17.8 per 100 people have received a jab now. Morocco, after a slow start to its vaccine rollout, has been a success in vaccinating at a rate more than twice that of the EU. If these programmes can sustain their momentum, it should mean restrictions can be lifted sooner than in most other parts of the world, allowing for a stronger recovery to get underway.

By contrast, in the rest of the region, vaccine rollouts are sluggish. The Saudi programme, which launched in December has only given a dose to 2.5 per 100 people. And in the likes of Egypt, Lebanon, Algeria have vaccinated less than 1% of the population. Unless the pace of vaccinations picks up it could mean restrictions remain in place for longer and weigh on domestic activity.

The one cause for concern is Jordan where new daily COVID-19 cases have skyrocketed to a more than 6,000 a day. The authorities have maintained a full lockdown on Fridays, but if the outbreak worsens restrictions may be tightened further.

The week ahead

Egyptian inflation figures are likely to show the headline rate increased last month. (See Preview.)


Data Previews

Egypt Consumer Prices (Feb.) Wed. 10th Mar.

Forecasts

Time (GMT)

Previous

Consensus

Capital Economics

Consumer Prices %m/m (%y/y)

-0.4%(+4.3%)

+0.7%(+5.1%)

Inflation will increase over the coming months

Egyptian headline inflation probably accelerated to 5.1% y/y last month. This would move the headline rate back within the Central Bank of Egypt’s (CBE’s) target range of 7±2%. With inflation likely to drift higher in the coming months, we think policymakers will keep interest rates on hold until later in the year.

Headline inflation dropped back from 5.4% y/y in December to 4.3% y/y in January, its weakest pace since September, which was almost entirely driven by a slump in food price inflation. (See here.) We think that the headline rate will bounce back this month as food and energy prices both pick up.

Food and energy inflation is likely to strengthen a little further, and coming alongside a likely weakening of the pound, this will continue to push up the headline rate over the coming months. We think the headline rate will peak at around 6.5% y/y in Q3. (See Chart 1.) Against this backdrop, we think policymakers at the CBE will keep interest rates on hold for much of this year.

Further out, though, we think the headline inflation rate will drop back in the final few months of 2021 and possibly fall through the lower bound of the CBE’s target range. This should re-open the door for rate cuts and we hold the non-consensus view that the overnight deposit rate will be lowered by a total of 150bps, taking it to 6.75%, by end-2022.

Chart 1: Egypt Consumer Prices (% y/y)

Sources: CAPMAS, CEIC, Capital Economics


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

5th Mar

No Significant Data or Events

6th Mar

No Significant Data or Events

7th Mar

No Significant Data or Events

8th Mar

Kuw

Private Sector Credit (Jan.)

(+3.6%)

UAE

Consumer Prices (Jan.)

+0.1%(-2.1%)

+1.8%(-0.3%)

9th Mar

No Significant Data or Events

10th Mar

Egy

Consumer Prices (Feb.)

-0.4%(+4.3%)

+0.7%(+5.1%)

Egy

Core Consumer Prices (Feb.)

(+3.6%)

(+4.4%)

11th Mar

Qat

Consumer Prices (Feb.)

+1.2%(-1.3%)

+0.7%(-0.7%)

Oma

Consumer Prices (Feb.)

0.0%(-1.6%)

+0.9%(-0.3%)

Oma

Private Sector Credit (Jan.)

(+2.2%)

OPEC

OPEC Monthly Oil Market Report

Selected future data releases and events

15th Mar

Bah

Private Sector Credit (Jan.)

(+6.8%)

17th Mar

Jor

Consumer Prices (Feb.)

+0.1%(-0.3%)

+0.3%(-0.1%)

18th Mar

Egy

Interest Rate Announcement

(17.00)

8.25%

8.25%

22nd Mar

Jor

Industrial Production (Dec.)

(+3.6%)

Egy

Current Account Balance (Q4)

$2.8bn

25th Mar

Sau

Consumer Prices (Feb.)

+0.2%(+5.7%)

+0.3%(+5.7%)

28th Mar

Sau

Private Sector Credit (Feb.)

(+14.4%)

29th Mar

Bah

GDP (Q4, q/q(y/y))

+1.4%(-6.9%)

+2.6%(-2.7%)

Qat

Private Sector Credit (Feb.)

(+8.7%)

Sau

Non-oil Trade (Q4, SAR)

55.1bn

30th Mar

Qat

GDP (Q4, q/q(y/y))

+5.6%(-4.5%)

+3.0%(-0.8%)

2nd Apr

Bah

Consumer Prices (Feb.)

-1.1%(-2.7%)

+0.7%(-0.7%)

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Refinitiv, Capital Economics


Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World 1

2008-18

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

Saudi Arabia

1.2

3.5

2.4

0.3

-4.3

2.3

6.3

2.5

-2.1

3.4

3.8

1.8

Egypt

0.9

3.9

5.4

5.5

1.0

6.0

6.3

14.4

8.6

5.2

5.8

4.5

UAE

0.5

2.8

1.7

3.0

-9.0

9.8

6.8

3.1

-1.9

-2.1

2.5

3.0

Algeria

0.4

2.8

1.5

0.8

-9.3

4.5

4.0

4.3

2.0

2.4

5.0

6.5

Morocco

0.2

3.8

3.0

2.3

-6.5

9.5

4.3

1.8

0.2

0.7

1.0

1.3

Qatar

0.2

7.4

1.4

-0.4

-2.8

4.5

4.3

0.3

-0.6

-2.6

1.3

2.5

Kuwait

0.2

1.1

1.2

0.4

-7.8

4.0

5.3

0.6

1.1

2.1

3.3

2.5

Oman

0.1

4.1

2.0

0.5

-7.3

7.0

2.8

0.9

0.1

-0.8

2.8

1.3

Tunisia

0.1

2.3

2.5

1.0

-8.5

8.0

3.5

7.3

6.7

5.6

5.3

5.8

Jordan

0.1

3.2

2.0

2.5

-1.5

2.8

2.3

4.5

0.8

-0.3

2.0

3.8

Lebanon

0.1

3.4

0.2

-3.0

-40.0

-10.0

6.8

6.1

2.9

84.9

59.0

9.5

Bahrain

0.1

3.8

2.0

1.8

-4.5

6.0

3.3

2.1

1.0

-2.3

1.0

1.8

Middle East & N. Africa2

4.0

3.7

2.7

2.0

-5.2

4.9

5.6

5.3

1.5

4.1

4.9

3.3

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates). 2) Regional inflation aggregate excludes Lebanon.

Table 2: Central Bank Policy Rates

Policy Rate

Latest
(4th Mar.)

Last Change

Next Change

Forecasts

End
2021

End
2022

Saudi Arabia

Reverse Repo Rate

0.50

Down 75bp (Mar. ’20)

None on the horizon

0.50

0.50

Egypt

Overnight Deposit Rate

8.25

Down 50bp (Nov. ’20)

Down 50bp (Q4 2021)

7.75

6.75

UAE

Repo Rate

0.75

Down 75bp (Mar. ’20)

None on the horizon

0.75

0.75

Algeria

Discount Rate

3.25

Down 50bp (Mar. ’20)

None on the horizon

3.25

3.25

Qatar

Deposit Rate

1.00

Down 50bp (Mar. ‘20)

None on the horizon

1.00

1.00

Kuwait

Discount Rate

1.50

Down 100bp (Mar. ’20)

None on the horizon

1.50

1.50

Morocco

Key Rate

1.50

Down 50bp (Jun. ’20)

None on the horizon

1.50

1.50

Oman

Overnight Repo rate

0.50

Down 100bp (Mar. ’20)

None on the horizon

0.50

0.50

Tunisia

BCT Key Rate

6.25

Down 50bp (Sep. ’20)

None on the horizon

6.25

6.25

Jordan

Overnight Deposit Rate

1.75

Down 100bp (Mar. ’20)

None on the horizon

1.75

1.75

Lebanon

Repo Rate

10.00

Down 200bp (Dec ‘09)

None on the horizon

10.00

10.00

Bahrain

1-week deposit facility

1.00

Down 75bp (Mar. ’20)

None on the horizon

1.00

1.00

Sources: Bloomberg, Capital Economics

Table 3: Currencies and Stock Markets

Currency

Latest
(4th Mar.)

Forecasts

Stock Market

Latest
(4th Mar.)

Forecasts

End
2021

End
2022

End

2021

End
2022

Saudi Arabia

SAR/USD

3.7514

3.7500

3.7500

TASI

9,301

10,850

13,050

Egypt

EGP/USD

15.64

16.00

17.00

EGX30

11,319

13,800

16,400

UAE

AED/USD

3.6728

3.6725

3.6725

DFMGI

2,569

2,975

3,500

Algeria

DZD/USD

132.8

160.0

170.0

Qatar

QAR/USD

3.6411

3.6400

3.6400

QSE

10,004

12,650

14,800

Kuwait

KWD/USD

0.3024

0.3040

0.3040

KWSE

5,653

7,000

7,000

Morocco

MAD/EUR

10.73

11.25

11.50

MADEX

9,228

9,950

10,000

Oman

OMR/USD

0.3840

0.3845

0.3845

MSM30

3,652

4,500

5,200

Tunisia

TND/EUR

3.29

3.60

3.80

TUNINDEX

6,716

7,150

7,250

Jordan

JOD/USD

0.71

0.71

0.71

ASE

1,763

2,050

2,350

Lebanon

LBP/USD

1505.7

7,500

7,500

BLOM

692

700

725

Bahrain

BHD/USD

0.3771

0.3761

0.3761

BHSE

1,473

1,850

2,100

Sources: Bloomberg, Capital Economics


James Swanston, MENA Economist, james.swanston@capitaleconomics.com