Although the growth in the Middle East and North Africa (MENA) at the outset of this year did not fare as well as initial expectations, speculations that an oil deal could be struck at the informal Opec Organisation meeting in September have reinvigorated oil markets and alleviated fears about a severe economic crunch in the region.
Furthermore, after the implementation of harsh fiscal consolidation processes, the economic sentiment improved amid signs that some of the economies which were worst hit by the fall in oil prices in the last two years have started to stabilise.
Nevertheless, the region remains vulnerable to geopolitical risks and volatility in the oil markets. Against this backdrop, the September edition of the “Focus Economics Consensus Forecast Middle East & North Africa” kept the growth projections for the region stable at 2.3%. For 2017, growth in the region is expected to accelerate to 3%.
In its September forecast, Focus stated that Qatar and Iran are expected to be the best performers in 2016, while Saudi Arabia and Lebanon are expected to perform poorly, and Yemen as a result of the ongoing civil war is expected to be the worst performer.
On the other hand, Egypt and Israel are forecast to have the fastest growth among the rest of the MENA countries, with a projected GDP expansion of 3.1%, and 2.6% respectively.
Egypt’s economy still faces many conundrums, from shortages in US dollars to severe capital outflows and plummeting tourist numbers. As a result, the government plans to raise $21bn to fund an ambitious three-year programme in coordination with the International Monetary Fund.
Consequently, Egypt will commit to quick implementation of economic reforms, which will include the introduction of the value-added tax (VAT), which was recently approved by parliament, and further devaluation of the Egyptian pound.
Although the government’s programme could stabilise Egypt’s macroeconomic fundamentals, various factors will still negatively impact Egypt’s GDP: soaring inflation, a severe US dollar shortage, and a weak private sector. As a result, Focus Economics projects Egypt’s GDP to expand 3.1% for fiscal year (FY) 2016, and 3.6% for FY 2017.
Inflation reached a record level high in June at 14%, and continued into July, which is Egypt’s highest reading since early 2009. As a result, consumer prices are likely to increase as well. Focus Economics expects an average inflation of 11.8% for calendar year 2016, and 11.5% for 2017.
With regards to Egypt’s real estate sector, the Emirates NBD Purchasing Managers Index (PMI) recorded a notable decrease from 48.9% in July to 47% in August, which is considered the lowest reading in the past four months.
The deterioration in PMI value in August comes as a result of different factors: weak demand dynamics, US dollar shortages, and an increase in the price of raw materials.
“The August PMI figures underscore the urgency to initiate a wide-ranging economic reform programme. Most importantly, the survey data highlights the ongoing need to move to a more flexible exchange rate system in order to achieve a market-clearing rate for the Egyptian pound,” said Jean-Paul Pigat, senior economist at Emirates NBD.
