Region to mount a recovery

Growth in the Middle East and North Africa slowed to its weakest pace since the global financial crisis in 2017, but the region is set for a recovery over the next twelve months. The rebound in growth is likely to be driven by the Gulf, where the drag from last year’s oil output cuts will fade. And even though oil prices are likely to come off recent highs, governments look set to slow the pace of fiscal austerity this year. These should more than offset the headwinds from rising interest rates and geopolitical tensions, including Saudi Arabia’s recent anti-corruption purge. Outside the Gulf, Egypt’s economy should pick up as inflation and interest rates fall sharply and the government eases up on austerity. For the MENA region as a whole, we forecast growth of 2.8% this year, up from 1.8% in 2017. However, in contrast to the consensus which expects the recovery to strengthen in 2019, we think a resumption of austerity in the Gulf and a weaker global backdrop will cause regional growth to plateau next year.