Monthly Insights - January 2022

As 2022 begins, the world economy looks to be on a more assured footing. The threat posed by the highly-transmissible Omicron variant of Covid-19 appears less worrisome than it did at the end of 2021 and the disruptions to growth are likely to be minimal. Inflation is now the dominant economic challenge with central banks reorienting rapidly toward tackling price gains. This is perhaps most notable in the Federal Reserve which has switched to an unabashedly hawkish stance and is growing more so almost daily. With markets giving the Fed a clear window to start tightening policy at the March FOMC meeting, we now expect the Fed to raise rates in March, with at least another three hikes to follow in 2022.

In the GCC, we expect growth to accelerate this year with the oil and gas sector contributing meaningfully to this faster growth. Higher oil revenues will help to further reduce budget deficits in the region, with the UAE, Saudi Arabia and Qatar likely to post budget surpluses in 2022.

In the rest of MENA things look more uncertain as the year begins, with tourism sectors still struggling and some countries seeing political disruption. Nevertheless, some of the challenges should alleviate as the year goes on and we expect that growth will be stronger this year than last.

Oil markets will be supported in the first half of the year as demand recovers close to its pre-pandemic levels. With supply increases also expected in 2022, oil markets are looking much more balanced than the experience of the last few years.

Global economics

Fed could raise rates as soon as March Recent economic data and increasingly hawkish commentary by Federal Reserve officials have led us to bring forward the start of the rate hiking cycle in the US to March, even amid the near-term downside risks to growth posed by the spread of the Omicron variant of the coronavirus in the US.

Global growth outlook 2022 While the rapid spread of the Omicron variant of Covid-19 through the final months of 2021 initially prompted widespread concerns around the potential impact on growth in 2022, that concern is slowly turning to optimism that in fact this is the beginning of the end of the pandemic.

Regional Economics

GCC: Despite relatively tight fiscal policy, and some external headwinds, we expect the GCC economies to see faster growth in 2022 as they continue to build on the progress made last year. Overall, we forecast GDP growth in the GCC will accelerate to 5.1% on a nominal GDP-weighted basis in 2022, with the oil and gas sector contributing meaningfully to this faster growth. 

 UAE The UAE has enjoyed a strong finish to 2021, with Expo 2020 and rebounding tourism boosting domestic demand. While the outlook for 2022 remains broadly constructive, there is still a high degree of uncertainty especially with regards to the evolution of the coronavirus pandemic. 

Lebanon We expect that Lebanon’s economy will return to growth in 2022, though this will in large part be attributable simply to base effects following a parlous four years of contraction rather than due to any marked improvement in the outlook. We forecast real GDP growth of 2.9%, following an estimated -4.7% last year.

Dubai Tourism The tourism statistics for Dubai released through November, prior to the global onset of the Omicron variant, point to very robust recovery across key tourism metrics.

Markets

Dollar to remain strong in H1 The policy divergenc between the Federal Reserve and other central banks will help to support the dollar at least in the first half of 2022.

Fed turns much more hawkishThe minutes of the December FOMC highlighted how focused the Fed is on tackling price pressures as the central bank has already begun considering how to draw down its balance sheet.

OPEC+ shows confidence in face of Omicron Oil markets will likely be much more balanced in 2022 as demand moves closer to pre-pandemic levels and supply comes back to the market from OPEC+ and others. 

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