MENA Quarterly: Q4 2018

• OPEC production is increasing but not significantly enough to prevent prices from spiking up to over USD 85/b. Despite growing international pressure to increase output to dampen down prices, OPEC has so far held back from dramatically increasing production.
• Oil production in GCC countries has increased significantly in recent months while higher oil prices have dramatically improved the outlook for GCC budgets and provide room for increased government spending in 2019. 
• While increased government spending is supportive of GDP growth in 2019, it remains vulnerable to future oil price shocks. Moreover, higher interest rates will continue to weigh on non-oil sector activity across the region.  Reforms to boost private sector investment and activity will thus remain key to sustain growth over the medium term.
• Global conditions are exerting pressure on MENA oil importers. High debt levels for countries such as Lebanon and Egypt will translate into even higher debt servicing costs as global monetary tightening continues. This will weigh on their ability to continue on their fiscal consolidation plans.
• Higher oil prices will also exert pressure on current account deficits and CPI inflation as most countries have cut the extent of their fuel subsidies in recent years. In light of this, we no longer project a further interest rate cut in Egypt in 2018, as inflation has picked back up to 16.0% in September. 

GCC budget deficits set to narrow sharply while non-GCC MENA deficits remain substantial

Source: Haver Analytics, Emirates NBD Research

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