Published: Dec 18, 2010 23:36 Updated: Dec 18, 2010 23:36
Most oil exporters of the MENA (Middle East & North Africa) region will experience higher GDP (gross domestic product) in 2011. Gulf oil sector growth is likely in 2011, although nonoil private and government sectors will be the key catalysts for real GDP growth, Crédit Agricole CIB said in its latest report prepared by John Sfakianakis, Crédit Agricole CIB chief economist for the MENA region.
Saudi Arabia’s private sector should expand 4.6 percent in 2011, with overall GDP growth of 4.2 percent in MENA’s largest economy. The UAE will benefit from Abu Dhabi’s nonoil infrastructure and manufacturing expansion and revived trade, tourism and retail sales in Dubai. The bank expects UAE GDP growth of 3.4 percent in 2011, up from 2.5 percent in 2010. Kuwait is also poised for higher economic growth as it rolls out a $104 billion investment plan, yielding GDP growth of 3.5 percent in 2011 from 3.2 percent in 2010. The plan is susceptible to fragile political consensus. Still the highest in MENA, GDP growth of natural gas exporter Qatar may fall to 12.4 percent in 2011 from 16.1 percent in 2010. For the oil producers, downside risks to the outlook are linked to oil prices, weak private sector recovery (deleveraging), which could impact banks’ balance sheets, muted nonoil investments and deterioration in asset prices.
Corporate and sovereign MENA bond yields have declined during 2010 as market conditions have improved and Dubai World reached a deal with creditors to restructure $25 billion in debt. With tens of billions of dollars in Gulf debt due for refinancing in 2011, robust Q4 bond market activity should continue in 2011. Helping the bond market along will be lower costs to insure MENA sovereign debt. Still, any missteps by Dubai in dealing with more than $100 billion in outstanding debt could weigh on risk appetite across MENA. Equity markets in the Gulf have witnessed slower performances than Egypt as confidence is still low.
MENA oil importers – among them Lebanon, Tunisia and Morocco – should witness a decline in GDP growth in 2011 as non-agricultural sectors are decelerating. In contrast, Egypt should see a slight increase from 5.2 percent in 2010 to 5.3 percent in 2011. Workers’ remittances have increased steadily and foreign direct investment, down in 2010, is likely to pick up in 2011 as the global economy mends. Reducing Egypt’s budget deficit from 8.1 percent of GDP will be difficult without a reduction in subsidies – unlikely in the short term as inflation rates remain near double-digit levels in 2011. MENA GDP growth is too low to support enough job creation, underpinning the need for more private sector engagement.
Tunisian and Moroccan currencies and their primary trade and remittance flows reflect their euro-centric dependence, which makes them vulnerable to a sluggish recovery in the euro zone. EGP, although vulnerable to downside risks, would be defended by the central bank at around the 5.78 mark. The other potential hazard for the EGP, Egyptian CDS and equities, is political uncertainty about the succession plan of Egypt’s 82-year-old president ahead of the 2011 presidential vote.
US dollar strength in 2011 should give respite to imported inflation and subdue speculation for a change in Gulf currency pegs, already evidenced in the moderation of Saudi riyal forward rates since October. Inflation is likely to ease in North Africa, Egypt, Saudi Arabia and Lebanon in 2011, but in five Gulf countries it should rise on higher aggregate demand and base effects. Qatar, emerging from two years of deflation, could see inflation of 2.7 percent in 2011, the lowest in the Gulf.
Despite political uncertainty, Lebanon’s construction sector, remittances and tourism have bolstered the economy, although national debt of 148 percent of GDP, sharp fiscal deficits and some speculative real estate prices overshadow the firm fundamentals. Questions about succession plans in Egypt and potential geopolitical tensions in Lebanon, Iraq and Iran could also lead to a revision of regional risk appetite in 2011.