- Oil prices have rallied to their highest level since the end of 2014 as OPEC continues to display strong compliance with its production cut. Risk factors in the oil market point to potentially more upside ahead thanks to unplanned outages in Venezuela, the risk of sanctions on major producers and the US disappointing bullish growth expectations.
- If sustained into H2, the high GCC compliance with OPEC targets poses a downside risk to our 2018 GDP growth forecasts. Non-oil sector data in the GCC in the first quarter has also been underwhelming, particularly in Saudi Arabia where the PMI fell to the lowest level in the series history. This was especially surprising given an expansionary 2018 budget and higher oil prices.
- Higher than forecast oil prices year-to-date would have provided a welcome boost to GCC budgets, but this did not deter sovereigns from raising around USD 40bn in external debt since January.
- Political risk threatens to derail growth in a number of MENA countries in 2018. Widespread protests in Tunisia have hampered industrial production, the prospects for peace in Libya remain distant, and there is a growing likelihood that some, if not all, US sanctions against Iran will be re-imposed.
- Egypt continues to recover, with Q2 2017/18 growth of 5.3% y/y the highest since 2010. The outlook for the coming year is positive, as the re-election of President Abdel Fattah el-Sisi in March spells policy continuity and continued progress on its reform programme.
OPEC maintains a high level of compliance
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Source: Bloomberg, Emirates NBD Research
Daniel Richards
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