Markets Overview


The outlook for the Middle East and North Africa varies greatly between oil-exporters and oil-importers. For the GCC countries, we continue to see an overall robust picture on the back of expansionary government spending. State spending is forecast to be broad-based, spurring both job creation and private-sector spending and resulting in a multi-faceted domestic demand story. We expect oil prices to remain at a comfortable level (ex-Bahrain) and expect the GCC to have some of the largest fiscal and current account surpluses in the world.

For oil-importing countries, we see a number of challenges, notably balancing social factors and economic growth with fiscal reforms required to bring down government deficits. The fiscal positions have reached a critical point where reform is necessary, along with the central part of the agreements with the IMF. The fiscal reforms will compress margins for both corporations and individuals and result in weaker growth environment than in the GCC countries. Continuing political transitions will also add to the economic challenges.

Egypt – The country‘s political deadlock shows no sign of resolution in the near-term, therefore we maintain our outlook of dampened economic growth and stalling reform momentum. The country is running on a tight foreign reserve position, leading to expectations of a weaker currency. Moreover, a widening fiscal deficit and deteriorating energy balance leads to expectations of more economic pain, in the form of higher inflation and weaker currency, in the near future.

Ghana – Economic growth should maintain its strong pace above 8% thanks to rising oil production, even as non-oil economic activity is dampened by energy disruptions and high interest rates. The current account deficit is set to remain wide at c12% of GDP due to the weak outlook for cocoa and gold exports. Rising debt levels and limited economic buffers leave the economy vulnerable to external shocks.

Iraq – A rise in oil production is further improving the country‘s growth trajectory by ensuring higher levels of government spending and a stable currency. The country‘s main challenge remains on the political side where tensions between the Sunni part of the country and the central government are leading to a growing rift.

Jordan – The government is pressing ahead with required reforms which are driving increased capital transfers from the IMF and GCC countries. The latter, together with lower oil prices, will lessen the pressure on the fiscal and external accounts. The growth trajectory, however, remains weak given regional instability and tight fiscal balances.

Kenya – With presidential elections concluded in March, the policy focus on economic reforms is back on track. The external position is already benefiting from the receding political uncertainty and the current account deficit is set to narrow this year thanks to benign weather and a sharp increase in remittances. Inflation has shown notable moderation thus far this year, thanks to a good harvest and tight monetary policy.

Lebanon – The ongoing civil war in Syria poses a major threat to the country‘s political stability given that most political factions are involved one way or another in the conflict. As a result, confidence remains weak, leading to expectations of stalling economic growth. The deterioration in the fiscal balance is a key concern to the country‘s macro stability.

Nigeria – The economy is set to expand in 2013, benefiting from increased spending in addition to agriculture and electricity reforms. Consumers are also likely to benefit from normalised inflation levels following last year‘s fuel price hikes in addition to a tight monetary policy stance supported by ongoing fiscal consolidation.

Palestine – Economic activity remains dampened by a drop in foreign aid, which resulted in a crippling budget deficit. The fall in aid means the government can barely honour the wages of civil servants and secure operating costs. The stalling of peace talks with Israel and overall regional instability are further obstacles to a return in confidence.

Zimbabwe – The economy continues to show strong performance after the era of hyperinflation which ended in 2009. Growth is set to accelerate from last year‘s estimated 4.5% thanks to growing mining activity. The external sector remains a key risk to macro stability as a large current account deficit, higher external debt and low levels of foreign reserves leave the economy vulnerable to external shocks.

Morocco – A strong harvest should enable Morocco to achieve the strongest growth levels in North Africa in 2013 as it helps support strong private consumption growth. The twin deficits will also narrow thanks to the strong harvest as well as lower oil prices. However, rising political tensions amongst the members of the coalition is reducing the potential for much-needed fiscal reforms this year.

Saudi - We forecast a strong broad-based growth outlook for Saudi Arabia in the medium term. There remains a need to upgrade infrastructure and the government‘s labour policy is supporting the consumption outlook. Promotions of third-generation princes are important for policy continuity.

Bahrain – There are signs of a moderate pickup in economic activity with a stabilisation in the political environment. However, Bahrain continues to suffer from a fragile political environment and a tight fiscal position. Wider GCC support is vital in supporting the domestic investment.

Qatar – Qatar enjoys one of the strongest GDP growth levels both in MENA and globally. We see government spending – focusing on construction and infrastructure projects – as being the cornerstone of the economy. We expect an acceleration in real non-oil growth, especially from 2014 with greater implementation of FIFA World Cup projects.

Kuwait – The country once again faces fresh elections in 3Q2013 and political uncertainties remain. Electoral reforms should help to build a more positive relationship between the government and parliament. There are limited signs of progress with the investment programme, so far.

UAE – UAE‘s economy is showing positive signs and we now see UAE as a top regional pick, along with Qatar and Saudi. Growth is multi-faceted and we see a strengthening in both consumption and investment activity in 2013. Fiscal reforms and a stronger growth outlook is helping Dubai meet its refinancing needs.

Oman – The sultanate enjoys robust growth levels supported by expansionary government spending and an increase in oil production. We expect an increase in oil and gas investment from 2013, alongside investments to increase the economic base. The government is also focusing on job creation for nationals.