MENA Quarterly Q1 2018

• 2018 has started on a firm footing globally, with upbeat economic data from the major developed markets, equity indices reaching record highs and oil prices trading closer to USD 70pb than USD 50bp.  We expect growth in the GCC economies to accelerate to a weighted average of 2.8% in 2018 from an estimated 0.6% in 2017.
• The rally in oil prices will be welcome for GCC oil exporters but the pace of gains since October 2017 looks to us to have moved past fundamental support. While we expect oil prices to be higher on average in 2018 than they were last year, we are cautious that a near-term correction in prices is approaching. 
• GCC governments have approved expansionary budgets for 2018, following two years of relative austerity and fiscal reform, including new taxes, cuts to energy and other subsidies and curbs on public sector wage growth.  Infrastructure investment is likely to underpin non-oil growth in the UAE, which we expect to be the fastest growing economy in the region in 2018.
• Fiscal deficits are set to narrow despite increased expenditure, on the back of higher oil prices as well as increased non-oil revenue.  Nevertheless, GCC governments are likely to tap external debt markets again in 2018, to help finance budget shortfalls.     
• In ex-GCC MENA too, governments are likely to ease up on austerity measures following popular protests in some countries and to shore up support ahead of elections in others. 
• Prospects for Egypt and Morocco look brighter after a challenging couple of years.  Real GDP growth in Egypt has strengthened, and we expect growth of 4.9% over the current fiscal year, which would mark the strongest growth rate since pre-revolution FY2009/10. Slower inflation should also allow the central bank to cut interest rates from next month.  Morocco remains attractive despite slower forecast GDP growth this year, with strong inward investment and modest current account and fiscal deficits.  

Growth outlook improves in 2018 

Source: Emirates NBD Research

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