Monthly Insights - May

The worldwide surge in inflation, driven by ongoing supply chain dislocations and the conflict in Ukraine, has continued to disrupt the global economy over the month of May, with mounting concerns around the risk of a recession weighing on markets – especially as the Federal Reserve continues to signpost a more aggressive pace of rate hikes than had been contemplated at the start of the year. While the key macro indicators for the US economy still show an expansion, the pace of that is slowing, and this has been reflected in sharp losses in equity markets where the S&P 500 flirted with bear market territory in the month.

With the pace of the Federal Reserve’s hikes set to exceed its peers, the dollar remains strong even as it has weakened moderately through the end of May. This tighter monetary policy has implications for emerging markets also, and the Egyptian central bank hiked its benchmark rates once more this month as it deals with accelerating inflation and a more difficult international environment. Within the GCC, the PMI surveys for May remained robust but there was evidence of mounting price pressures there also.

High oil prices pose a challenge for the regional net importers, but for the exporting countries it represents a windfall, especially as they steadily increase production. In Saudi Arabia, high prices have led to a sizeable surplus in the budget in the first quarter. Oil markets look likely to remain squeezed for the time being as OPEC+ has shown no indications that it will ramp up production more rapidly as it maintains that the volatility in oil markets has ‘not been caused by market fundamentals.’

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