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AICEP
Agência para o Investimento e Comércio Externo de Portugal

CABEÇALHO

Economic activity in Middle East and North Africa to be expected to pick up slightly in 2019.

Although growth in MENA is expected to pick up slightly this year, the performance will differ greatly among countries within the region, with Iran contracting yet again and Iraq rebounding strongly. Overall, oil-exporting economies will be affected by an uncertain global oil market, while weak global demand and political unrest are broader downside risks to the outlook.

 

Saudi Arabia Economic Outlook

The oil sector dragged on overall growth in the first quarter as the country took on the lion’s share of the oil production cuts agreed with OPEC+. This trend is expected to continue at least until the end of the year given the oil production cuts will likely be extended at the 1–2 July OPEC+ meeting. Dynamics in the non-oil sector, however, are gradually strengthening thanks to bolder government support and a recovery in private sector credit. In this regard, the non-oil PMI hit an over one-year high in May on solid new orders and output. Job creation in the private sector, however, has remained lackluster in 2019 despite the recovery in non-oil activity and the implementation of the Saudization program, which restricts jobs for foreign workers. Meanwhile, the war of words between Iran and Saudi Arabia continued to escalate in recent weeks, especially following the downing of a U.S. drone in the Persian Gulf and increasing attacks on Saudi infrastructure launched by Yemen’s Iran-backed Houthis.  

Large oil production cuts are expected to weigh on growth this year, although the economy will benefit from stronger public spending and a recovery from the introduction of a VAT last year. The main risks to the outlook are the uncertain global economic outlook, which could trim oil demand, and elevated geopolitical risks in the region.

FocusEconomics panelists expect growth of 1.6% in 2019, which is unchanged from last month’s projection, and 2.2% in 2020.

 

Israel Economic Outlook

The economy seemingly lost steam in the second quarter, after a frontloading of car purchases ahead of green tax changes boosted the first quarter’s outturn. The Central Bank’s State of the Economy Index suggests economic activity ebbed noticeably in April and May, likely in part on lower vehicle sales. A contraction in exports also played a role, amid a strong shekel and more challenging global trade environment. More positively, the labor market is in rude health: The unemployment rate dipped to a 14-month low in May, which should be supporting wage growth and domestic demand. In mid-June, GDP figures for Q1 were revised down slightly, largely on softer-than-previously-estimated expansions in private consumption, fixed investment and exports, and larger-than-estimated growth in imports. However, the overall picture was unchanged: Domestic demand powered the economy, while the external sector subtracted from growth.

Growth should be brisk this year, supported by the strong labor market. Moreover, the development of the Leviathan gas field should boost investment. Rising global trade uncertainty and geopolitical tensions pose downside risks to growth.

FocusEconomics analysts expect growth of 3.3% in 2019, which is unchanged from last month’s forecast, and 3.3% again in 2020.

 
UAE Economic Outlook

FocusEconomics analysts expect growth of 3.3% in 2019, which is unchanged from last month’s forecast, and 3.3% again in 2020.

The economy should gain impetus this year, pillared by a sizeable fiscal stimulus aimed at infrastructure investment for Expo 2020, as well as business-friendly reforms which should attract foreign investment. Nevertheless, the evolution of OPEC+ output decisions will be key to the outlook, while lower global growth and a fragile real estate sector pose additional risks.

FocusEconomics panelists expect GDP to increase 2.5% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.0% in 2020.

 
Egypt Economic Outlook

Economic growth ticked up in January–March from the prior period. While details are not yet available, higher government consumption likely supported the expansion, as reflected by the government’s fiscal accounts which show spending rose sharply in July–March compared to the same period a year earlier. Fixed investment also likely increased, given a large chunk of the government’s extra spending went on public investments. In addition, higher public wages, a lower unemployment rate and a moderation in inflation should have buoyed private spending. More recently, the non-oil private sector PMI rose above the 50-point mark that separates expansion from contraction in April for the first time in eight months. Meanwhile, on 17 May, the IMF announced it would shortly release the remaining USD 2 billion of the Egyptian government’s USD 12 billion financial support program.

The economy is seen accelerating slightly next fiscal year, which starts in July, primarily due to higher private and government consumption, while fixed investment is projected to continue growing rapidly. Still-fragile government finances, an uncertain global trading environment and internal security problems threaten the outlook, however.

FocusEconomics panelists expect GDP to expand 5.5% in FY 2020, which is unchanged from last month’s forecast, and 5.5% again in FY 2021.

 
MENA Monetary & Financial Sector News

Regional inflation rose from 8.7% in April to 8.8% in May. Skyrocketing inflation in Iran as the country grapples with U.S. sanctions continues to propel regional inflation, while inflation in Egypt remains solidly anchored in double-digits. Conversely, a dire situation in the housing markets continues to cap prices in the countries of the Gulf Cooperation Council (GCC). 

A more dovish stance by the Federal Reserve will allow central banks in the region which use interest rates to tune their monetary policies to keep their accommodative policies in place. That said, most central banks in MENA cannot fully manage their monetary policies as they have currency pegs, mostly against the USD.

Robust domestic growth and the Fed’s dovish stance supported the Egyptian pound and the Israeli shekel in recent weeks. Nevertheless, a large majority of countries in the region maintain a de jure or de facto currency peg against the U.S. dollar or a basket of currencies mostly composed of the USD and the EUR.

 

See the Full FocusEconomics Middle East & North Africa Report

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