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|17 January, 2019

Playing catch-up: MENA's oil importers set to grow at faster rate than exporters - S&P

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A man counts Egyptian pounds outside a bank in Cairo, Egypt October 24, 2016. Image used for illustrative purpose.

A man counts Egyptian pounds outside a bank in Cairo, Egypt October 24, 2016. Image used for illustrative purpose.

REUTERS/Mohamed Abd El Ghany

Ratings agency S&P Global has said that it expects many of the oil-importing nations in the Middle East and North Africa region to grow faster than the oil exporters.

In a paper examining sovereign rating trends for the region in 2019, the agency said that it expects economic growth for the region as a whole “to remain broadly stable at 2.8 percent on average” this year, compared to 2.6 percent last year.

However, it said that it expects oil importing entities (including Egypt, Jordan, Lebanon Morocco and the emirates of Ras Al Khaimah and Sharjah, to grow at a rate of 4 percent this year, weighted by nominal GDP. It also said this is likely to increase to 4.5 percent over the following two years.

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"This is partly due to the 'catch-up effect' whereby countries with lower wealth levels have higher economic growth rates. However, stronger growth also reflects ongoing reforms, strong domestic consumption, and sufficiently robust external demand," the agency said in a report published on Wednesday.

In terms of individual importers, it expects growth to be strongest in Egypt, at about 5.5 percent next year, and for Morocco to grow at 3.2 percent. Lebanon is expected to be the weakest performer among the group, improving slightly to 2 percent this year, from 1.2 percent in 2018.

"In our view, Lebanon's traditional growth drivers- tourism, real estate, and construction - will remain subdued as long as the Syrian conflict continues," S&P Global's report said.

Meanwhile, the agency said that it expects growth to be lower among oil exporters (Abu Dhabi, Bahrain, Iraq, Kuwait, Oman, Qatar and Saudi Arabia) at 2.5 percent this year, up from 2.1 percent in 2018 and a 0.5 percent contraction in 2017. Growth is then set to fall slightly to 2.3 percent in 2020-21.

"Our growth outlook for MENA oil exporters is subject to significant volatility predicated on future oil prices," it said.

Average Brent oil prices rose to $72 per barrel last year, up from $52 in 2017, but the agency is predicting a drop back to an average of $55 per barrel in 2019.

A separate report released yesterday looking at the sovereign ratings of the six Gulf Cooperation Council countries by rival agency Moody's also predicted "subdued" non-oil growth from the mainly exporting nations of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. It also warned that slow non-oil growth, which is a key driver of job creation, could lead to rising unemployment in the region in the future.

"In the current environment, we expect unemployment to be broadly unchanged or rise slightly further," Moody's note said.

"Over the longer term, demographic trends will cause joblessness to climb, unless the participation of nationals in the private sector increases significantly," it added. It forecast non-oil growth to average around 3 percent for the GCC in 2018-19, increasing to 3.4 percent next year.

It also said the higher oil prices achieved last year had weakened the momentum for reforming local economies, citing the delay in implementing VAT in many nations as an example. All six GCC states had agreed back in 2016 to implement VAT at a 5 percent in 2018, but only Saudi Arabia and the UAE did so. Bahrain has introduced VAT on January 1 this year.

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(Writing by Michael Fahy; Editing by Mily Chakrabarty)

(michael.fahy@refinitiv.com)

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