Timothy Fox - Head of Research & Chief Economist
Khatija Haque - Head of MENA Research
Edward Bell - Commodity Analyst
Published Date: 13 April 2017
Notwithstanding the highly uncertain geopolitical environment at the moment the second quarter has begun with the GCC recording improving economic activity data and with progress also being seen in other prominent MENA economies.
The outlook for the oil market remains pivotal for the GCC. Three months in, compliance with the cuts agreed by OPEC and non-OPEC producers have helped to keep the market from falling further but haven’t been enough to prompt a major turnaround in prices. We expect OPEC will extend its production cuts for another six months but that an eventual return to supply growth will act as a further barrier to price rallies.
PMI data indicate a solid recovery in non-oil sectors in the UAE and Saudi Arabia in Q1 2017, which should help to offset lower hydrocarbon growth. However, the headline indices belie relatively soft employment growth, as firms continue to face margin squeezes.
2017 promises to be one of the best years for economic growth in the Middle East’s non-GCC markets. A combination of improving political stability, reform agendas backed by IMF agreements, higher agricultural output and strengthening exports, should see regional growth accelerate to multi-year highs. While those economies exposed more heavily towards the GCC could still see some pressure on remittance inflows, banking sector deposits or FDI, the broader global environment appears to be one of higher confidence and strengthening demand.
The Egyptian economy’s rebalancing process following last year’s devaluation appears to be proceeding in an almost textbook fashion. The shift to a more competitive currency has seen the trade deficit narrow, with imports collapsing and exports exhibiting their strongest growth in five years. Foreigners’ holdings of treasury bills have also jumped, with attractive yields and greatly reduced FX risks helping to entice some of this ‘hot money’ back into the local market.
Risk sentiment still driving FX