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Oil producers will be under pressure from OPEC output cut quotas, while drought will hit agriculture in North Africa. Overall, the region will be impacted by rising interest rates and a weaker global economy. Weather, geopolitics, the Ukraine food deal and further OPEC production cuts are key factors to watch.
FocusEconomics panelists now expect average inflation in the Middle East and North Africa to rise slightly this year compared to last year. However, this is mainly due to weaker currencies spurring higher prices in Egypt, Iran and Lebanon, and most countries will see lower inflation this year. Key factors to watch include the Ukraine food deal and the impact of the recent drought on food prices.
Saudi Arabia Cools Down
Meanwhile, Saudi Arabia’s GDP growth will cool in 2023 as base effects strengthen and oil production falls, after posting its fastest pace in more than a decade in 2022. Overall, GDP growth will be slightly below the average of the past decade. Key factors to monitor are Fed rate hikes, global oil demand and OPEC+ quota changes.
Regarding the UAE, last month, the FocusEconomics panel further downgraded its 2023 GDP growth forecast, with economic expansion expected to more than halve from 2022 due to weakness in the oil sector. That said, it will remain healthy as economic diversification efforts intensify and the non-oil sector performs strongly. Further changes in oil production quotas and volatility in crude oil prices are factors to watch.
Bahrain’s GDP growth slows
Bahrain’s annual GDP growth was supposed to slow in the first quarter after a strong performance in 2022. Weakness in the oil industry could drive the slowdown: Oil production fell nearly 7% in the first quarter from a year earlier.
By contrast, private spending was supposed to contribute to overall growth. Price pressures in the first quarter fell to the lowest average since the fourth quarter of 2021, helping household budgets. Still, the central bank raised rates further in February and March to protect the dinar’s peg to the dollar, boding poorly for credit and investment.
In other news, S&P Global Ratings affirmed the country’s ‘B+’ rating on May 29 with a positive outlook; the credit rating agency praised the government’s reforms to boost the non-oil sector, as well as a growing current account surplus.
This year, GDP growth will slow from 2022; private and public spending will grow at a slower pace due to still-high price pressures and higher interest rates. A sluggish oil sector will also weigh on overall GDP growth. Crude oil production quotas and global oil prices are factors to watch.
FocusEconomics panelists expect GDP to grow 2.7% in 2023, down 0.1 percentage point from a month ago, and 2.9% in 2024.
Inflation was 0.7% in April (March: -0.1%) as prices for food and non-alcoholic beverages and transport rose more sharply. In contrast, housing and utility prices fell at a faster rate. This year, inflation will drop significantly from 2022 due to rising interest rates.
FocusEconomics panelists expect consumer prices to rise an average 1.7% in 2023, down 0.2 percentage points from a month earlier, and rise an average 2.0% in 2024.
Egypt’s GDP growth accelerates
In Egypt, GDP growth is expected to accelerate in FY2024 (July 2023-June 2024) following a projected slowdown in FY2023. Loose monetary policy and cooling inflation will boost growth. In addition, the IMF’s $3 billion and World Bank’s $7 billion programs will stabilize investor sentiment and support the implementation of much-needed reforms.
In Iran, economic activity in Iran Year 2023 (SH 2023, March 2023 to March 2024) will be stalled by US sanctions, socio-political unrest and high inflation. However, strengthening trade ties with Russia will provide support. Downside risks are outbreaks of social unrest and further sanctions. Progress in talks on a nuclear deal leading to sanctions relief is the key upside risk.
In Iraq, growth should halve in 2023 as oil production stalls. Risks appear tilted to the downside, including further cuts to OPEC+ quotas, prolonged disruption of oil exports, delays in budget approvals and resurgence of domestic socio-political tensions. Additional investment by foreign oil companies is an upside risk following TotalEnergies’ recent commitment to invest $10 billion.
in Israel. GDP growth should halve this year from 2022, but remain among the fastest growing in the OECD in terms of a revival in tourism, rising gas production and a rapidly growing population. Socio-political unrest and weakening judicial independence are key downside risks. In addition, the administration’s tough stance on Palestine could strain Israeli-Arab relations.
Kuwait’s GDP growth slows fivefold
In Kuwait, which may have had one of the fastest expansions in the region last year, the economy appears to be slowing sharply through 2023.
GDP growth this year is expected to be more than five times slower than last year due to tighter OPEC+ production quotas, higher borrowing costs, weaker external demand and normalization of non-oil activity.
Oman’s economy grew by 4.3 percent last year. Growth was led by the oil sector, which rose by 10.2%. The non-hydrocarbon sector rose 1.6 percent, with services output up 5.0 percent. Going into 2023, the hydrocarbons sector appears to have weakened, with oil production near a standstill between January and April compared to 2022.
That said, LNG exports rose 23% in January-February, providing some respite. The non-hydrocarbon sector is likely to fare better, with inflation falling so far this year.
GDP growth should cool below the pre-pandemic average in 2023 as the post-pandemic recovery loses steam and hydrocarbon activity slows. More positively, non-hydrocarbon sectors will be supported by infrastructure investments. Key factors to watch include fiscal consolidation, fragile labor markets and geopolitical tensions.
FocusEconomics panelists expect GDP to grow 2.2% in 2023, unchanged from a month ago, and 3.2% in 2024.
Qatar’s GDP expands
The Qatari economy recorded a multi-year high GDP growth rate of 8.0% in the fourth quarter. The data was boosted by the impact of the FIFA World Cup, although the energy sector also recorded strong growth. Turning to 2023, available data is positive.
The non-oil private sector PMI has risen sharply since February, recording its strongest reading since last July, as demand for goods and services accelerated.
Economic activity will slow this year due to weak construction activity, rising interest rates and weak external demand. That said, ongoing energy sector development – including fossil fuels and renewables – and a booming tourism industry will provide support. Improving relations with Arab neighbors is an upside risk. FocusEconomics panelists expect GDP to grow 2.6% in 2023, up 0.1 percentage point from a month ago, and 2.5% in 2024. — trade arab news agency
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