Economic Snapshot for the Middle East & North Africa

The Middle East and North Africa’s (MENA) economy is fighting with the reduction in crude oil production required to obey with the November deal among OPEC and non-OPEC members and lower-than-expected prices for oil. That said, flourishing economic activity in Iran and healthy dynamics among oil-importing nations are putting a floor underneath regional growth. According to a preliminary estimate that accounts for around 75% of the region’s nominal GDP, the MENA region expanded Four.0% annually in Q1, down from Q4’s Five.1% rise.

Oil-producing countries, led by Saudi Arabia, were behind Q1’s poor spectacle in MENA, mostly reflecting diminished crude output. The main exception was Qatar as the country has a relatively diversified economy and a strong position as a natural gas producer. Albeit Iran’s GDP growth decelerated slightly in Q1, it still posted a double-digit expansion for the third quarter in a row on the back of strong crude output. While the country is benefiting from its reintegration into the global economy, economic data for SH 2016, which ended in March 2017, signals that Iran is still facing fat domestic vulnerabilities. Private consumption is still feeble on the back of high unemployment and inflation levels. Moreover, the construction sector remains in the doldrums following years of economic mismanagement. If Iran is able to address its large economic imbalances and domestic request shifts into higher gear, it could stimulate request across the region. Better weather conditions, subdued oil prices and strong global request supported economic activity among oil-importing nations in Q1.

While more latest data suggests that non-oil activities remained sturdy in Q2, volatility in the oil market, along with the ongoing oil cuts, likely put a lid on MENA’s economic growth in the period. If the economic environment is at least uncertain, political risks are quickly escalating, menacing to dash any peek of a recovery. Bahrain, Egypt, Saudi Arabia and the United Arab Emirates proclaimed on thirty July that they are ready to negotiate with Qatar. Far from suggesting Qatar an olive branch, the four countries reiterated their positions and stated that before commencing any negotiation, Qatar has to react to the “13 demands” that the Saudi-led bloc issued on twenty three June and stop “funding terrorism”. Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani dismissed the statement and restated that both the blockade and the expulsion of Qatari citizens from the alliance countries were illegal. The two chambers of the U.S. Congress overwhelmingly voted in favor of a fresh round of sanctions against Iran, North Korea and Russia on twenty seven July, and the next day White House officials stated that President Donald Trump was ready to sign them into law. The sanctions against Iran target Iranian firms with ties to the country’s ballistic-missile program. With no resolution to the Gulf crisis in look and renewed tensions inbetween Iran and the U.S., geopolitical risks will remain in the spotlight for the foreseeable future.

Political unrest resumes to weigh on two thousand seventeen growth prospects

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Political tensions in the Gulf proceed to cloud the economic outlook in the region, while fears that the global oil glut is not subsiding are hurting growth prospects among some of the region’s largest economies. Against this backdrop, analysts cut MENA’s two thousand seventeen economic outlook for the 2nd month in a row and they now expect the region to expand Two.1%, which is down 0.1 percentage points from last month’s estimate. Growth in the region is expected to accelerate to Trio.2% in 2018.

This month’s downgrade to MENA’s two thousand seventeen economic outlook reflects lower growth prospects for eight of the sixteen economies surveyed, including Qatar and Saudi Arabia. The economic outlook improved in Egypt, Israel and Tunisia, while projections were left stable in Iran, Jordan, Lebanon, the United Arab Emirates and Yemen.

Iran is projected to be the best performer of the year followed by Morocco. At the other end of the spectrum, GCC countries are expected to perform poorly, with Kuwait and Saudi Arabia both contracting in 2017. Of the rest of the major economies in the region, Egypt will likely grow the fastest followed closely by Israel.

SAUDI ARABIA | Geopolitical risks and worsening oil outlook put a lid on growth prospects

Latest available data suggests that the economy remained in the doldrums in Q2, following the very first spasm since the global financial crisis in Q1. The economy resumes to feel the brunt of Saudi Arabia’s compliance with the OPEC oil cut deal, which is dampening activity in the all-important oil sector. This situation is little by little feeding into the non-oil sector, with the non-oil PMI averaging lower in Q2 than in Q1. Moreover, the Kingdom is increasingly worried over overall OPEC and non-OPEC compliance with the deal as most key producing countries boosted crude production in June. Meantime, the political rift inbetween Qatar and the Saudi-led alliance is not displaying signs of abating following Qatar’s decision to reject the bloc’s thirteen requests early in July. While Saudi Arabia and its allies did not announce any measure to force Qatar in compliance, the political spat remains tense in the region.

Low crude production, limited gains in oil prices and mounting geopolitical threats will predominate the economy in the months to come. Panelists expect GDP to fall 0.1% this year, which is down 0.Trio percentage points from last month’s projection, before accelerating to 1.8% growth in 2018.

UAE | Government unveil details on two thousand eighteen VAT implementation

The non-oil sector proceeds to hum along, with the PMI remaining well within expansionary territory so far this year thanks to solid domestic request and strong growth in output and fresh orders, albeit employment growth has been anemic due to pressure on margins. In contrast, the oil sector is looking peaky; even tho’ the UAE complied with oil production cuts in May and June, and despite the OPEC deal extension until November, prices remain fairly depressed. However, the country is still navigating the choppy economic waters of low oil prices better than GCC neighbors, thanks to a rock-solid fiscal position and a relatively diversified economy. In order to boost revenues and broaden the tax base, from two thousand eighteen VAT will be implemented for the very first time at Five.0%. The specificities of the policy are little by little crystalizing, with the government recently announcing exemptions for residential real estate, some financial services and local transport.

Growth will decelerate further in two thousand seventeen due to lower oil production. However, the non-oil sector should act as a countervailing force, thanks to stronger outward request and greater investment in prep for the Dubai two thousand twenty World Expo. FocusEconomics panelists expect GDP to rise Two.1% in 2017, unchanged from last month’s forecast, and Three.3% in 2018.

EGYPT | IMF releases 2nd aid tranche

The government’s bold economic strategy was vindicated in mid-July, with the IMF formally signing off on the 2nd tranche of bailout funding worth USD 1.25 billion. In its very first review of the Extended Fund Facility (EFF), the Fund gave a fairly ringing endorsement, lauding the progress on the reform agenda, with fresh investment and industrial licensing laws recently approved and a fresh insolvency law presently in Parliament. Nevertheless, consumers could be forgiven for not sharing the IMF’s enthusiasm, as latest hefty fuel and electrical play subsidy cuts have the potential to further stoke already-high price pressures in the coming months. They can however take some solace from plans to phase out energy subsidies more step by step than previously expected and a social package announced by the government in June. In the face of higher inflation, the Central Bank is taking no chances, pulling up the monetary drawbridge further at its most latest meeting despite the fragile economy.

Growth will accelerate in FY 2018, as investment grows strongly thanks to latest laws designed to improve the business environment, while slowly-declining inflation should boost consumers’ purchasing power, driving up private consumption. Analysts expect GDP to have expanded Trio.5% in FY 2017, and forecast growth of Four.0% in FY 2018, which is up 0.1 percentage points from last month’s forecast

ISRAEL | Economy completes Q2 on a mixed note

The economy is in sound health, yet latest data paint a mixed picture. While economic activity enlargened a healthy Four.4% on an annual basis in June, the PMI fell significantly—although it did remain in expansionary territory for the 12th consecutive month—and industrial production decelerated in May. Imports rebounded strongly in June on the back of enlargened request for consumer goods, but exports recorded their worst spectacle of the year and contracted notably in the same month. On the political front, the Labor Party elected Avraham Gabbay as its leader. Albeit Israel’s next elections are scheduled for 2019, analysts have speculated that early elections could take place due to investigations into alleged corruption in Prime Minister Netanyahu’s circle. The party’s supporters are hopeful that Gabbay, who has drawn comparisons to French President Macron for being an outsider to the establishment, is the man that will oust the current Prime Minister.

Growth is expected to pick up this year. Unemployment remains low and improving consumer confidence supported by an accommodative monetary policy should stimulate private consumption. The recovery of the export sector, despite June’s powerless spectacle, ought to help spur growth too. FocusEconomics panelists expect growth of Trio.4% in 2017, which is up 0.1 percentage points from last month’s forecast. For 2018, the panel projects GDP growth to be Trio.5%.

INFLATION | Inflation broadly stable in June

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