MENA Quarterly Q4 2020

Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Daniel Richards - MENA Economist
Published Date: 13 October 2020

 

  • Preliminary Q2 GDP data for Saudi Arabia and Bahrain show sizeable contractions in the non-oil sectors’ GDP, with hospitality, transport and trade unsurprisingly the hardest hit sectors.  We have downgraded our 2020 growth forecasts for both countries as PMI survey data points to a stabilisation in Q3 rather than a sharp rebound.  
  • In the UAE, PMI survey data suggests that activity has started to recover in the third quarter, although employment in the private sector remains under pressure as firms focus on reducing costs. While we retain our 2020 GDP forecast of -5.5%, we recognise that risks are to the downside, particularly against a backdrop of slower global growth in Q4 as rising coronavirus cases in major economies have led to renewed localised restrictions on activity.
  • We do expect GCC GDP growth to rebound in 2021, assuming the pandemic is contained with a vaccine available for wide distribution in H1 2021.  However, most governments in the region are likely to prioritise deficit reduction over growth, which could weigh on a recovery even as the external environment improves.
  • The Covid-19 pandemic is weighing heavily on MENA oil importers, many of which have sizeable tourism industries which have been brought to a near standstill by the crisis. While a collapse in imports means that current account balances have not widened as sharply as they might have, the drop-off in visitor numbers is contributing to sizeable economic contractions this year, and poses challenges to the labour market.
  • Egypt has managed to weather the pandemic crisis comparatively well. The PMI survey has turned positive once again in September at 50.4, while persistently low inflation gave the CBE room to cut its benchmark interest rate at its September meeting. Should inflation remain below 4.0% for the October print, we see scope for a further rate cut at the November 12th MPC meeting.
  • Oil markets face a tentative outlook in the final months of 2020 as Covid-19 cases re-emerge and fiscal support for economies expires. OPEC+ will need to carefully monitor demand conditions in coming months to assess whether the market can indeed absorb an increase in production from the start of 2021.

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