The Middle East and North Africa region is unlikely to escape the impact of a trade war, with the biggest potential impact coming from a decline in oil prices, according to the chief economist of Jordan’s Arab Bank.
Speaking on a panel debate on the global outlook for the MENA region, Arab Bank’s chief economist Radwan Shaban said that falling oil demand from China and other nations, as the result of a prolonged trade dispute, would be “a negative for the region”.
“This is a region in which, yes, we have oil exporting and oil importing countries, but in terms of numbers, oil exporting countries account for 80 percent of GDP of this region in 2018,” Shaban said. “Even the welfare of oil-importing countries is closely tied to oil-exporting countries through trade, tourism, FDI, foreign assistance – a whole bunch of factors.”
He said that oil importing countries such as Jordan witness lower trade, lower investment levels and lower assistance with Gulf neighbours if oil prices decline, which “translates into lower economic growth”.
Monica Malik, chief economist with Abu Dhabi Commercial Bank (ADCB), said that with oil prices maintaining a level above $70 per barrel since the second quarter of this year, “we are more optimistic” of the region’s prospects for growth.
She anticipates that higher revenues from oil will mean the government will enjoy a fiscal surplus in 2018, while Saudi Arabia will “substantially reduce” its deficit to under 5 percent of gross domestic product (GDP), although other nations such as Bahrain, Kuwait and Oman had been less progressive with their reforms.
“But I think with the GCC [Gulf Cooperation Council] support packages to Bahrain, we expect the pace of reforms there to accelerate. We’ve already had parliament approve their VAT law,” Malik said.
Both the United Arab Emirates and Saudi Arabia have shifted fiscal policy from consolidation towards growth, Malik said, and had given indications that they intend to continue doing so throughout next year.
In the UAE, she said the country has benefited from “a number of stimulus packages and support measures which aren’t just for short-term growth support but also to improve the business environment, to bring capital inflight, to bring foreign direct investment.”
“I think the critical driver of economic activity, non-oil activity, in the Gulf is government activity still. So I think focused growth, supported by investments that will really improve the medium-term environment, will be positive for the private sector, though at this point it’s still weak and tightening monetary policy is one of the key headwinds.”
James McCormack, global head of sovereign and supranational ratings at Fitch Ratings, was less positive about Saudi Arabia’s fortunes.
“If you dig around the numbers a little bit, you see a big increase in oil revenues, which has been matched largely by increases in spending. And the concern there is the increases in spending are in current spending, not capital, so (it’s) a little bit more difficult to bring those back down when oil prices maybe come down,” he argued.
A widening gap
He said that the balance of the non-oil economy as a proportion of GDP was worsening.
“The deficit is getting bigger. So this is really an oil story in terms of the fiscal recovery that we’re seeing in Saudi Arabia,” McCormack argued.
McCormack also said that he feared the trade dispute between the United States and China could be a prolonged one.
“I think it (dispute) is going to last longer, in part because of the fact that the U.S. has moved the goalposts - in fact, widened the goalposts a couple of times,” McCormack said.
He argued that some of the demands being made by the U.S. are considered to be “non-negotiable” by the Chinese government.
“I don’t see how we’re going to have a discussion that’s going to satisfy both sides. This has the potential to turn into something meaningful from a global macro sense,” McCormack argued.
Shaban said that a slowdown in global trade would hit the region in other ways. For instance, he said that Morocco is a significant supplier to Europe’s automotive sector, while in Egypt revenues from ships passing through the Suez Canal provide the country with an important source of foreign currency revenues.
“As global trade slows, that will affect the Suez Canal activity,” Shaban said.
(Reporting by Michael Fahy; Editing by Shane McGinley)
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