Rapid vaccine roll-out, oil to support Gulf economies

A rapid roll-out of COVID-19 vaccines, along with rising oil production and higher oil prices, will support a quick recovery this year in the Gulf economies, said London-based consultancy, Capital Economics.

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But other parts of the Middle East and North Africa (MENA) are likely to take longer to recover their lost ground amid a slower roll-out of vaccines and tight fiscal policy.

The UAE’s vaccination programme has got off to a strong start and, if this continues, it should allow for restrictions to be lifted in Q2. Combined with stronger oil output and the hosting of the World Expo, this will support a robust recovery this year. But concerns over Dubai’s corporate debts are unlikely to fade.

The recovery in Saudi Arabia’s economy will continue over the course of this year. But with oil output being ramped up only gradually and fiscal policy to remain tight, the recovery is likely to be slower than in the other Gulf states.

Egypt’s economic recovery will be boosted by the recovery in the global economy, but ongoing restrictions will weigh on domestic demand. Rising inflation will prevent interest rate cuts over the next few quarters, but we hold a non-consensus view that the central bank will ease policy later in the year.

The removal of the Saudi-led blockade on Qatar will help to repair political relations in the region, but we think the scope for a boost to the economic recovery from its removal will be limited. Instead, rising demand for LNG and a rapid vaccine rollout will support a strong rebound, although fiscal austerity and tighter credit conditions will remain key headwinds.

In the long term, the recovery from the coronavirus crisis will be slow going across MENA compared with other parts of the world. And, further out, peak oil demand will act as a key headwind for the Gulf. “But we are slightly more optimistic on the prospects for North Africa,” William Jackson of Capital Economics said.

Writing by Brinda Darasha