Monthly Insights: October 2021

Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Shady Elborno - Head of Macro Strategy
Daniel Richards - MENA Economist
Published Date: 28 October 2021

 

Central banks appear anxious to get ahead of rapid inflation via bringing asset purchases to an end and signalling when they may begin to raise rates. But the normalization of policy could come just as the economic recovery is showing more and more signs of slowing. 

Energy prices have spiked higher in the final months of 2021 thanks to supply shortages in some key markets. While contributing to inflation worries for many countries, higher oil prices will be a boost for regional economies and help to support growth and fiscal balances.

Regional Economics

UAE: Near term outlook is brighter The UAE economy looks set for faster growth in the final quarter of 2021 after a relatively slow start to the year. The relaxation of travel restrictions in key tourism markets including the UK and Saudi Arabia should support a strong recovery in the travel and hospitality sectors in the UAE over the coming high season, while Expo 2020 is expected to result in a boost to consumption expenditure in the next two quarters.

UAE-China: A global trade axis The importance of the trade and economic ties between the United Arab Emirates and China cannot be underestimated and has grown significantly since the diplomatic relationship between both countries was established in 1984.

Improving oil outlook will boost Iraqi economy We anticipate that Iraqi real GDP growth will have remained very weak this year with a forecast of 1.1% following 2020’s double-digit contraction, weighed down by OPEC+ oil production curbs and the ongoing Covid-19 pandemic. This will accelerate to 5.3% in 2022 on the back of higher oil production and easing pandemic pressures, but with elevated inflation and ongoing power shortages, the non-oil sector will remain vulnerable.

Global Economics

High inflation leaves the Fed with few good options How the Federal Reserve responds to the jump in US inflation is the dominant question for financial markets. High commodity prices and reopening complications have contributed to higher headline inflation but may not lead to persistent gains in prices. A preemptive normalization of policy—via interest rates hikes—should help to cool inflation but could come at the cost of longer-term scarring in the labour market well after the initial shock from the Covid-19 pandemic.

 Podcast: Why aren’t people going back to work? Khatija Haque and Daniel Richards discuss the latest US jobs data, the frictions in labour markets across several regions, and what they might mean for inflation. Find out more in the latest episode of Market Matters.

 China GDP results hold indications for global trajectory China’s Q3 real GDP growth results, which disappointed to the downside, are potentially a foretaste of more disappointing Q3 data to come, especially from those countries that have been pursuing a zero-Covid strategy. When combined with ongoing supply chain issues, and the energy crunch which began to make itself felt during the period, the headwinds to global growth have been mounting. 

Markets

GCC economies announce net zero carbon targets The UAE is committing to a target of 2050 when its economy will produce net-zero emissions while Saudi Arabia and Bahrain have targeted a date of 2060. The three countries stand out as the first among major economies in the Middle East and North Africa to publicly commit to a net-zero target and also as they collectively represent around 13% of total global oil production.

Energy shortages will keep oil prices high We don’t expect the current phase of energy market apparent tightness to dissipate quickly and some of it will bleed into early 2022.

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