Quarterly Q1 2017: Higher oil prices to ease fiscal strains

Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Published Date: 23 January 2017


  • Oil markets have started the year on a much stronger footing which should be a welcome relief for MENA producers. OPEC's production cut agreement has only begun to take effect and it will take time before it is clear how helpful it has been in pushing the oil market closer to balance.
  • 2016 was a challenging year for most GCC economies, which grappled with widening fiscal deficits, tighter liquidity conditions and budgetary reform.  Non-oil sector growth slowed as governments reined in spending and imposed higher taxes and fees.  However, this was offset to a large extent by substantial rises in oil production last year, which helped deliver solid overall GDP growth. 
  • Planned cuts to output in H1 2017 will prove a headwind to growth, but we think non-oil growth prospects are looking better this year.  Higher oil prices should reduce the need for further spending cuts and lower borrowing requirements. Increased infrastructure investment will support growth in the UAE and Qatar in 2017 and beyond.     

Higher oil prices should provide some relief to GCC budgets in 2017

Source: Bloomberg, Emirates NBD Research

  • In North Africa and the Levant, the start of 2017 holds some promise that economic conditions are finally set to improve across the region. The past several years have been defined by below trend growth, elevated unemployment, and slow progress on structural reforms. While we are not expecting a dramatic improvement in domestic consumption or investment patterns, there is nevertheless more cause for optimism now than has been the case in a number of years.
  • The contrast in Egypt’s economic outlook at the start of 2017 relative to where we were when our Q4 2016 Quarterly Outlook went to print is stark. The devaluation of the EGP in early November and the subsequent signing of a three-year USD12bn IMF program have been the most notable developments, providing a greater degree of clarity on the near-term direction of economic policy. 

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