Gulf countries weathering the storm, but growth to weaken

The Gulf economies have weathered the storm created by low oil prices relatively well this year, with foreign exchange reserves having been drawn down to sustain spending. Large savings mean that this can continue for some time. The upshot is that activity is unlikely to collapse in the foreseeable future and dollar pegs will remain intact. Meanwhile, oil production is likely to be kept at current record highs in an attempt to reclaim market share from high-cost producers elsewhere in the world. Nonetheless, fiscal policy is unlikely to provide the same support to the region as it has done in the previous decade and we expect economic growth to weaken over the coming quarters. In contrast, the consensus anticipates that growth will strengthen by next year. Elsewhere in the region, a fresh bout of social unrest remains the key risk to the outlook for the North African economies (Egypt, Morocco and Tunisia). But so long as they can avoid this, we think growth will accelerate as recent economic reforms start to bear fruit.