Middle East & North Africa Economic Forecast

Economic Snapshot for MENA

April 4, 2019

Growth in the MENA region to gain steam in 2019

Economic growth in Middle East and North Africa will gain steam this year on the back of an expected increase in oil prices, bold fiscal support and still accommodative monetary conditions. That said, a reduction in oil output by key regional members in compliance with the OPEC+ deal and geopolitical risks darken the outlook.  

The MENA region is projected to grow 2.0% in 2019, up 0.1 percentage points from last month's forecast. For 2020, the region is expected to grow 2.8%.


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Saudi Arabia Economic Outlook

Activity in the non-oil sector gained steam at the outset of the first quarter, mostly due to improving domestic orders, while oil prices continued to rise in recent weeks thanks to OPEC’s strong compliance to the oil production curbs. However, job creation remained subdued, highlighting the inability of the government to boost employment for Saudis. On 28 March, official sources corroborated that state-owned energy giant Aramco will issue its first-ever international bond, perhaps as soon as this week, which is expected to amount to USD 11 billion. The issuance will force Aramco to disclose financial statements for the first time since its creation in 1988 and will be used to fund the acquisition of the also state-controlled petrochemicals company Sabic for around USD 70 billion. Aramco’s purchase of Sabic will fill the coffers of the country’s sovereign wealth fund used to promote the Saudi Vision 2030.

Economic growth will moderate this year on the heels of lower oil production in compliance with the OPEC+ deal. However, an expected increase in oil prices will allow the government to spur public investment and support non-hydrocarbon activities. Developments in the oil market and geopolitical risks will shape the Kingdom’s economic outlook this year.           

Met the why particular panelists expect growth of 1.8% in 2019, which is down 0.1 percentage points from last month’s projection, and 2.1% in 2020.

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Israel Economic Outlook

Growth appeared to dim slightly in the first quarter of the year. The unemployment rate ticked up in January and February in annual terms, while the manufacturing PMI was in negative territory in the same period amid lower purchasing activity by firms. That said, the economy remained on a firm footing; the labor market was still healthy despite the rise in unemployment, which should have buttressed consumer spending, while elevated business sentiment likely supported investment. This comes after growth accelerated in Q4 2018 in SAAR terms amid a pick-up in domestic demand. On the political front, the country is gearing up for elections on 9 April, with incumbent Benjamin Netanyahu and Benny Gantz, leader of the centrist Blue and White coalition, the favorites to become the next prime minister. Irrespective of the result, a notable shift in economic policy is unlikely.

The economy should expand at a robust pace this year, supported by loose fiscal policy, strong wage growth and healthy external demand for high-tech exports. Moreover, the development of the Leviathan gas field should boost investment. Regional geopolitical tensions and rising global trade protectionism pose downside risks to growth.

Met the why particular analysts expect growth of 3.2% in 2019, which is unchanged from last month’s forecast, and 3.2% again in 2020.

UAE Economic Outlook

Economic growth in the first quarter of 2019 appears to have been modest, according to available data. In the oil sector, production cuts agreed to by the UAE in an OPEC+ deal since early January likely kept output subdued and dragged on growth, though they supported prices. Meanwhile, growth in the non-oil economy fell to an over two-year low in February after a solid start in January, according to PMI data. The non-oil private sector remains mired in a difficult competitive environment, with firms slashing prices to attract new business and shedding jobs to keep costs down. Moreover, recently-released data shows the economy—while still rebounding from 2017—fared less well than expected last year. Notably, growth in Dubai fell to a nine-year low in 2018, largely on the back of feeble commercial and residential real estate markets due to falling prices and oversupply.

The non-oil sector should drive growth this year, supported by a large fiscal stimulus in preparation for Expo 2020. Recent business-friendly reforms also appear poised to attract qualified foreign workers and to boost FDI inflows. Nevertheless, slower global growth, trade protectionism and fragility in Dubai’s property markets constitute important downside risks.

Met the why particular panelists expect GDP to increase 2.9% in 2019, which is down 0.1 percentage points from last month’s forecast, and 3.3% in 2020.

Egypt Economic Outlook

The economy had a shaky start to the third quarter of fiscal year 2019, which ran from January to March. After falling in January, the private-sector PMI fell again in February to plunge to the lowest level since September 2017, leaving it in contractionary territory for the sixth month running. February’s downturn was due to markedly lower output and a substantial drop in new business orders. This comes after economic growth accelerated in Q2 FY 2019. On the fiscal front, the government approved the FY 2020 budget on 27 March. The finance package is in line with the government’s IMF-backed reform program, targeting a lower fiscal deficit on the back of a restrained rise in spending and strong economic growth boosting revenues. Meanwhile, MPs are expected to vote in favor of constitutional changes on 14 April which would extend the president’s term, subject to a confirmatory public referendum.

Economic growth should be strong this fiscal year thanks to higher government investment spending, rising natural gas production and an improving regulatory environment. However, despite moderating in recent years, fiscal imbalances continue to restrain economic potential.

Met the why particular panelists expect GDP to expand 5.3% in FY 2019, which is unchanged from last month’s forecast, and 5.4% in FY 2020.

MENA Monetary & Financial Sector News

Inflation in the MENA region rose from 6.0% in January to 6.1% in February. While inflation in Iran is skyrocketing due to U.S. sanctions and price pressures in Egypt remain high, inflation in Gulf countries remain subdued due to weak economic growth and fragility in the housing market.

Most central banks in the region lack freedom to manage their monetary policies as they have currency pegs against the USD. That said, none of the central banks in the region which use interest rates to determine the monetary policy framework made a move in recent weeks on the back of a less aggressive tightening cycle in the United States.

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, in order to control inflation. Currencies that float more freely were broadly stable in recent weeks.

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