The Middle East & North Africa (MENA) region will next year record its weakest economic growth since the global financial crisis in 2009, according to a report. The latest outlook from Capital Economics warns the region will “struggle” again in 2017 as fiscal policies are tightened to plug current account and budget deficits, which have widened in the past two years as a result of persistent low oil prices.
Saudi Arabia is likely to see subdued growth for the most of the year, while, on the other hand, the UAE is expected to be the best performing economy in the Gulf in 2017 going into 2018, the research said.
Overall average growth in the region is likely to weaken to 1.5 percent in 2017. Capital Economics noted that dollar pegs in the Gulf would remain in place “but that means policymakers will be forced to follow the US Federal Reserve and hike interest rates”.
Meanwhile, last week’s OPEC deal, in which major oil producers agreed to cut production, has prompted speculation of a major shift in Saudi Arabia’s oil policy, but Capital Economics said it was “sceptical” that this would take place. It explained that the kingdom’s oil policy from the past two years remains in place and therefore it does not anticipate and significant and sustained drop in output. Prices are therefore unlikely to increase much, it said.
Of course, this means the government will need to further tighten monetary policy to alleviate budgetary pressures, and the kingdom’s overall economy is expected to grow by just 1.3 percent in 2017, Capital Economics said.
The UAE, however, “should embark on a gradual recovery in the coming quarters and is likely to be the best performing economy in the Gulf in 2017-18”.
In Kuwait, meanwhile, economic growth is expected to remain weak due to the “fractured” political environment despite a strong balance sheet, the report said.
It noted that Qatar’s economy, too, is likely to stay sluggish as fiscal policy becomes more restrictive and credit growth eases, while Bahrain and Oman will “underperform” their Gulf peers.
Source: Arabian Business