Cheap oil hits home

The Gulf economies have weathered the storm created by the fall in oil prices well so far, but 2016 is likely to be the year in which low energy prices begin to weigh on growth. We don’t expect currencies to be devalued, but governments are paving the way to tighten fiscal policy. Moreover, the impending return of Iranian oil to the market means there is little scope to raise energy output further. And interest rates will have to be raised in line with the US Fed. All told, we expect below-consensus GDP growth in the Gulf as a whole of just 1-2% over the next few years, which would – aside from the global financial crisis – be the weakest rates seen since the turn of the millennium.