Middle East And North Africa Outlook 2013
Business Monitor International (BMI) recently published its outlook for the Middle East and North Africa (MENA) in 2013. Some of the key themes we discuss are listed below:
- Growth Rates To Converge: Average real GDP growth rate differentials between the economies of the hydrocarbon-rich Gulf on the one hand, and the net oil importers of North Africa on the other, are set to narrow. Base effects are obviously a key aspect of this convergence, with the former group of states beginning to experience a cyclical downturn following two consecutive years of above average economic expansion. That said, and in contrast to previous years, we believe the non-oil sectors across the Gulf Cooperation Council (GCC) will outperform the oil sectors, as hydrocarbon output has in the majority of cases plateaued.
- Policy Risks In Focus: The nature of political risks is set to evolve, with the focus shifting towards increasingly erratic and unpredictable policy decisions, as opposed to large-scale civil unrest. In the Gulf, government policies will focus on efforts to increase participation rates of the national workforce in the private sector, in addition to legislation which aims to help move away from a dependence on hydrocarbons. In North Africa and the Levant, governments could face their biggest tests since early 2011, with highly unpopular economic reforms needing to be implemented, yet widespread public opposition and elevated unemployment raising risks of policy slippage or reversals.
- Little Hope For ‘Crisis States’: We do not expect a resolution to some of the most pertinent crises in MENA at the moment. Although we include Libya and Yemen in this category, the main concerns are Syria and Iran, where growth has slowed sharply following the imposition of international sanctions on each state’s respective oil sector. Presidential elections in June in Iran only further raise the risks of increased social unrest or erratic policy in the Islamic Republic in 2013, not to mention the rising risk of an Israeli air strike, especially if a hardliner wins the presidency.
- Balance Of Payments Strains Will Remain: The temporary impact of higher global commodity prices, lower tourism revenues, weak external demand and a slowdown in foreign investment will prevent a stabilisation in the balance of payments dynamics of net oil importers. Although the pace of foreign currency reserve depletion is likely to slow, many of these states will become increasingly reliant on external financial aid to prevent currency devaluations.
- Equities Over Fixed Income: With sovereign and corporate borrowing costs at multi-year lows, particularly in the Gulf, we believe the rally in regional fixed income markets is set to come to an end in 2013. In contrast, following two consecutive years of broadly sideways trading, equity markets could be set to head higher, particularly if the aforementioned uptick in non-hydrocarbon growth begins to materialise.
Our full MENA outlook is available to subscribers at Business Monitor Online.