PwC Middle East Economy Watch: Economic growth prospects improve for 2018 after falling short of expectations in 2017

● 2017 shows signs of improvement on 2016, but less than anticipated at the start of the year due to the oil market

● Deficits could be larger than anticipated for the year as a whole, likely prompting additional borrowing

● Momentum building in key parts of the regional economy, though potential headwinds from further fiscal tightening and political climate

● Current environment of low oil prices has prompted fresh interest in the economic suitability of the pegs, but a change in the currency regime is only likely to make good economic sense if and when commodities play a much smaller role in the Gulf economies

PwC Middle East Economy Watch: Economic growth prospects improve for 2018 after falling short of expectations in 2017

Dubai, UAE – There were high hopes that 2017 would be a turning point for oil exporting nations, as OPEC-led production cuts rebalanced the market. However, the results so far have been less than anticipated:

●      Oil prices below expectations – Brent crude oil has average $52/barrel so far this year, lower than the ~$58/barrel expected at the start of the year. This is due to inadequate compliance with cuts, at least until August plus revivals in production in Libya, Nigeria and US shale.

●        Deficits fall, but not fast enough: Fiscal data produced for the first half of the year (only available for three GCC countries) shows that Oman and Qatar deficits are down by about a third compared with the first part of 2016, and is less than anticipated. And although the Saudi data shows more improvement, cutting the deficit in the first half of the year by more than 50% y/y, the Saudi government pledging to repay various public sector benefits and bonuses could increase expenditure in the second half, leading to larger deficits than anticipated for the year as a whole.

 

●        Growth outlook stabilises: Growth in Q1 was mixed, with results in Saudi lower than expected, but a steady performance elsewhere. Notwithstanding these challenges, some economies in the region do appear to be turning the corner with momentum building in UAE, where the PMI hit a two-and-a-half-year high in August, and Saudi Arabia also seeing positive sentiment in its non-oil sector. Meanwhile, Egypt delivered a much stronger than expected Q2 growth of 4.9% and burgeoning central bank reserves could be a lead indicator of higher foreign investment.

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