Entries for 'Gulf Cooperation Council'

Nonresident capital inflows will increase to $136bn (6% of GDP) in 2024, primarily driven by sovereign bond issuances in Saudi Arabia to finance its fiscal deficit. However, net resident outflows, largely GCC transfers to SWFs, will still far exceed net nonresident inflows.

Gross foreign assets of the GCC countries are forecasted to grow to $4.4 trillion by the end of 2024, in this note we analyze where these petrodollars are being invested.

This report analyzes the possible political, social, and economic implications of the Israel-Hamas war on the MENA region.

Capital inflows are set to rebound in 2023 as sovereigns, particularly Saudi Arabia, issue more debt to finance fiscal deficits. However, resident outflows, largely GCC transfers to sovereign wealth funds, will continue to far exceed nonresident inflows.

The real estate prices will continue to rise in the UAE and Saudi Arabia, albeit at lower pace.

The impact of U.S. interest rate increases on the GCC will be limited in an environment of high oil prices.

Investor sentiment towards the GCC region will improve further due to higher oil prices. Government-Related Entities (GREs) and the financial sector are expected to slightly increase their debt issuance. The pace of ESG issuance is accelerating.

The MENA region has weathered the economic storm from the health crisis. The economic recovery continues to gain momentum. Higher energy prices will improve the fiscal and current account positions in oil exporters. In oil importers, deficits, government debt, and unemployment will remain high. 

The vaccine program and higher oil prices will support the recovery. However, we have marked down our forecast for 2021 due to revised prospects for the GCC. The fiscal deficit will narrow in Saudi Arabia, Oman, and Bahrain, and shift to surpluses in the UAE, Qatar, and Kuwait.

GCC authorities took forceful steps to mitigate the fallout from COVID-19, and we expect a modest recovery in 2021 supported by higher oil prices. However, the region confronts an ongoing exodus of expats and decelerating growth of capital stock, underscoring the need for broad structural reforms.

Sovereigns are increasingly tapping capital markets to finance fiscal deficits. Private inflows to the MENA region continue to be dominated by Saudi Arabia, the UAE and Qatar. Resident outflows are declining but still exceed inflows. FDI remains subdued and concentrated in the energy sector. 

Shocked by COVID-19 and the plunge in oil prices, the six GCC states will experience their worst recession in history. However, most GCC public sectors and banks are well positioned to absorb the shocks due to their large buffers and aggressive fiscal adjustments. 

Russia’s fiscal breakeven oil price, around $40/bbl in 2020, is the lowest among major oil exporters. While Saudi Arabia’s fiscal and external breakeven prices should decline due to a cut in non-priority spending and a fall in imports, fiscal breakeven prices remain well above $60 in much of MENA. 

Our MENA growth forecast stands at -0.3% with additional downside risks and high uncertainty over the duration of the shutdown and an additional potential fall on oil prices. We project recession in most oil exporters, the lowest growth in oil importers since the early 1990s, and wide twin deficits. 

We have lowered our average Brent oil price assumption by $10/bbl to $54/bbl for 2020 due to lower global demand for oil. Such a decline exposes significant vulnerabilities among MENA oil-exporting countries, especially Oman and Bahrain. External and fiscal positions are expected to weaken.

The extra 0.5 mbd cut may not be enough to rein in projected oversupply in 2020, since the OPEC+ bloc has already made cuts well beyond the 1.2 mbd target of the previous agreement. Consequently, we expect a decline in average Brent oil prices to $60 a barrel in 2020.

Non-resident capital inflows to the MENA region are projected to rise from $165bn last year to $200bn in 2019 before moderating to $173bn in 2020. With the increasing inflows, inclusion into global indices, and ongoing reforms, the MENA region is becoming more prominent on the EM investment map. 
 

We expect growth in the MENA region to slow to 1.4% in 2019 from 1.8% in 2018, dragged down by the deep recession in Iran and the compliance with the OPEC + deal. This aggregate picture, however, hides considerable heterogeneity in economic paths across the region.

We still expect Brent oil prices to average $65/b in 2019 and $62/b in 2020. Growth in non-OPEC supply combined with deceleration in global oil demand growth in 2019 and 2020, is offsetting upward pressure on oil prices from rising geopolitical tensions that could disrupt supply.

The GCC countries followed the Fed and cut their key policy rates, given their pegged exchange rates. Lower interest rates will encourage borrowing and stimulate non-oil growth, which has been weak in recent years. We expect non-oil growth to pick up from 2.1% in 2018 to 2.8% in 2019.