Jordan’s royal tumult, OPEC+ surprise, UAE’s vaccines - Capital Economics
Middle East & North Africa Economics

Jordan’s royal tumult, OPEC+ surprise, UAE’s vaccines

Middle East Economics Weekly
Written by Jason Tuvey
The royal turmoil in Jordan this week couldn’t come at a worse time for the economy and, if corruption allegations spur unrest, this would raise serious fears over the country’s poor external and budget positions. Meanwhile, the decision by OPEC+ to scale back its oil output cuts over the coming months means that oil sectors in the Gulf will recover a bit more quickly than we had previously expected. Finally, the UAE’s rapid COVID-19 vaccine rollout is helping to reduce infections and, crucially, deaths. This should pave the way for a lifting of containment measures and a sustained economic recovery in the very near-future.

Royal intrigue in Jordan

The royal turmoil in Jordan this week couldn’t come at a worse time for the economy and, if allegations of corruption spur unrest, this would raise serious fears over the country’s poor external and budget positions. But the IMF is unlikely to walk away.

The headlines this week have been dominated by the upheaval within Jordan’s royal family. To quickly recap, King Abdullah’s half brother and former crown prince, Hamzah bin Hussein, released two videos to the BBC on Saturday in which he declared that he had been placed under house arrest after apparently meeting with disillusioned tribal leaders. On Wednesday, King Abdullah declared that a sedition attempt had been quashed.

While the royal rumblings seem to have dissipated, this political uncertainty comes at a challenging time for Jordan’s economy. While a third wave of COVID-19 appears to have passed its peak, the slow vaccine rollout (currently only 4 per 100 people have received a dose) means that containment measures will stay tight. A rebound in the key tourism sector is likely to take some time. All of this will hold back the economic recovery – GDP was down by 1.6% y/y in Q4 of last year.

On a more comforting note, it was only last week that the IMF approved the disbursement of the second tranche of Jordan’s Extended Fund Facility and increased the size of the deal by $200mn. But the deal requires policymakers to push through fiscal consolidation over the coming years in order to rein in the country’s large twin budget and current account deficit and curb the rise in public debt, which is now more than 90% of GDP last year.

The major threat stemming from the past week’s political upheaval is that the corruption allegations made by Prince Hamzah strike a chord with Jordanians. The country has been no stranger to protests in recent years and, in the event of social unrest, policymakers would probably respond by loosening fiscal policy. This may ignite concerns over the external position and the direction of the public finances. But it’s unlikely that the IMF deal would fall apart. The Fund has shown a willingness to support countries in the region through periods of political upheaval even if there is slippage on reforms. And it will be under pressure from the US and Europe to maintain support for a key ally.

OPEC+ scales back production cuts

OPEC+ sprung a surprise last week by agreeing to scale back its oil output cuts over the coming months, which means that oil sectors in the Gulf will recover a bit more quickly than we had previously expected. Rising oil supply, coming at the same time as third virus waves in various parts of the world dampen demand, have prompted us to nudge down our near-term oil price forecasts – we now expect Brent crude to peak at $75pb in Q3, whereas we previously thought that it would reach $80pb. The overall effect on budget and current account positions in the Gulf will be negligible and we still think that fiscal policy will stay tight.

UAE’s fast vaccine rollout is working

The UAE has been among the world leaders in the rollout of COVID-19 vaccines and there are signs that this is having the desired effect. Helped too by tighter restrictions, daily new cases have dropped from their peak of close to 4,000 in late January to around 2,000 at present. While that’s still above their level prior to the onset of the third wave, vaccines seem to have reduced the incidence of death. So long as deaths stay low and strains on the healthcare system ease, the UAE should be in a position to lift containment measures in the next few months that will pave way for a sustained economic recovery much sooner than in most other parts of the region.

The week ahead

Inflation figures out of Saudi Arabia are likely to show that the headline rate rose last month.

Data Previews

Saudi Arabia Consumer Prices (Mar.) Thu. 15th Apr.

Forecasts

Time (BST)

Previous

Consensus

Capital Economics

Consumer Prices % m/m (% y/y)

-0.1(+5.2)

+0.3(+5.4)

Inflation set for temporary rise

We expect that Saudi Arabia’s headline inflation rate edged up to 5.4% y/y in March and it is likely to rise a bit further over the next few months.

Inflation dropped from 5.7% y/y in January to 5.2% y/y in February, the lowest reading since the VAT rate was hiked in July last year as food inflation continued to ease and weakness in the housing market pushed down rents.

We think that the headline rate edged back up to around 5.4% y/y in March. Food and core inflation probably held steady but unfavourable base effects created by last year’s collapse in oil prices mean that fuel inflation is likely to have jumped.

Further out, we think that inflation will rise over the coming months, peaking at around 6.5% y/y in June. But the headline rate will drop sharply in July and stay at around 1-2% y/y over the course of this year and next as the effects of the VAT hike drop out of the annual price comparison. (See Chart 1.)

Chart 1: Saudi Arabia Consumer Prices (% y/y)

Sources: CEIC, Capital Economics

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

11th Apr

No Significant Data Released

12th Apr

Oma

Consumer Prices (Mar.)

0.0%(-1.4%)

+0.1%(-1.8%)

Bah

Private Sector Credit (Feb.)

(+6.1%)

Oma

Private Sector Credit (Feb.)

(+2.7%)

13th Apr

OPEC

OPEC Monthly Oil Market Report

14th Apr

No Significant Data Released

15th Apr

Sau

Consumer Prices (Mar.)

-0.1%(+5.2%)

+0.3%(+5.4%)

Tun

Industrial Production (Jan.)

(-6.3%)

Tun

Industrial Production (Feb.)

Selected future data releases and events

16th Apr

Qat

Consumer Prices (Mar.)

-0.1%(-1.4%)

20th Apr

Jor

Consumer Prices (Mar.)

+0.7%(+0.4%)

22nd Apr

UAE

Private Sector Credit (Feb.)

(+2.4%)

Mor

Consumer Prices (Mar.)

+0.1%(+0.3%)

24th Apr

Jor

GDP (Q4, q/q(y/y))

(-2.2%)

27th Apr

Leb

Consumer Prices (Jan.)

+8.2%(+145.8%)

Leb

Consumer Prices (Feb.)

Leb

Consumer Prices (Mar.)

28th Apr

Sau

Private Sector Credit (Mar.)

(+14.7%)

29th Apr

Egy

Interest Rate Announcement

8.25%

Jor

Industrial Production (Feb.)

(-10.2%)

Qat

Private Sector Credit (Mar.)

(+8.1%)

3rd May

Bah

Consumer Prices (Mar.)

4th May

Sau

Whole Economy PMI (Apr.)

53.3

UAE

Whole Economy PMI (Apr.)

52.6

Kuw

Consumer Prices (Mar.)

Kuw

Private Sector Credit (Mar.)

5th May

Leb

Whole Economy PMI (Apr.)

6th May

Tun

Consumer Prices (Apr.)

Egy

Whole Economy PMI (Apr.)

48.0

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Refinitiv, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World 1

2008-18

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

Saudi Arabia

1.2

3.5

2.4

0.3

-3.9

2.3

6.3

2.5

-2.1

3.4

3.8

1.8

Egypt

0.9

3.9

5.4

5.5

1.0

6.0

6.3

14.4

8.6

5.2

5.8

4.5

UAE

0.5

2.8

1.7

3.0

-9.0

9.8

6.8

3.1

-1.9

-2.1

2.5

3.0

Algeria

0.4

2.8

1.5

0.8

-9.3

4.5

4.0

4.3

2.0

2.4

5.0

6.5

Morocco

0.2

3.8

3.0

2.3

-6.5

9.5

4.3

1.8

0.2

0.7

1.0

1.3

Qatar

0.2

7.4

1.4

-0.4

-2.8

4.5

4.3

0.3

-0.6

-2.6

1.3

2.5

Kuwait

0.2

1.1

1.2

0.4

-7.8

4.0

5.3

0.6

1.1

2.1

3.3

2.5

Oman

0.1

4.1

2.0

0.5

-7.3

7.0

2.8

0.9

0.1

-0.8

2.8

1.3

Tunisia

0.1

2.3

2.5

1.0

-8.6

8.0

3.5

7.3

6.7

5.6

5.3

5.8

Jordan

0.1

3.2

2.0

2.5

-1.5

2.8

2.3

4.5

0.8

-0.3

2.0

3.8

Lebanon

0.1

3.4

0.2

-3.0

-40.0

-10.0

6.8

6.1

2.9

84.9

59.0

9.5

Bahrain

0.1

3.8

2.0

1.8

-4.5

6.0

3.3

2.1

1.0

-2.3

1.0

1.8

Middle East & North Africa

4.0

3.7

2.7

2.0

-5.2

4.9

5.6

5.3

1.5

4.1

4.9

3.3

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest
(8th Apr.)

Last Change

Next Change

Forecasts

End
2021

End
2022

Saudi Arabia

Reverse Repo Rate

0.50

Down 75bp (Mar. ’20)

None on the horizon

0.50

0.50

Egypt

Overnight Deposit Rate

8.25

Down 50bp (Nov. ’20)

Down 50bp (Q4 2021)

7.75

6.75

UAE

Repo Rate

0.75

Down 75bp (Mar. ’20)

None on the horizon

0.75

0.75

Algeria

Discount Rate

3.25

Down 50bp (Mar. ’20)

None on the horizon

3.25

3.25

Qatar

Deposit Rate

1.00

Down 50bp (Mar. ‘20)

None on the horizon

1.00

1.00

Kuwait

Discount Rate

1.50

Down 100bp (Mar. ’20)

None on the horizon

1.50

1.50

Morocco

Key Rate

1.50

Down 50bp (Jun. ’20)

None on the horizon

1.50

1.50

Oman

Overnight Repo rate

0.50

Down 100bp (Mar. ’20)

None on the horizon

0.50

0.50

Tunisia

BCT Key Rate

6.25

Down 50bp (Sep. ’20)

None on the horizon

6.25

6.25

Jordan

Overnight Deposit Rate

1.75

Down 100bp (Mar. ’20)

None on the horizon

1.75

1.75

Lebanon

Repo Rate

10.00

Down 200bp (Dec ‘09)

None on the horizon

10.00

10.00

Bahrain

1-week deposit facility

1.00

Down 75bp (Mar. ’20)

None on the horizon

1.00

1.00

Sources: Bloomberg, Capital Economics

Table 3: Currencies and Stock Markets

Currency

Latest
(8th Apr.)

Forecasts

Stock Market

Latest
(8th Apr.)

Forecasts

End
2021

End
2022

End

2021

End
2022

Saudi Arabia

SAR/USD

3.7503

3.7500

3.7500

TASI

9,991

10,850

13,050

Egypt

EGP/USD

15.68

16.00

17.00

EGX30

10,309

13,800

16,400

UAE

AED/USD

3.6728

3.6725

3.6725

DFMGI

2,583

2,975

3,500

Algeria

DZD/USD

132.1

160.0

170.0

Qatar

QAR/USD

3.6415

3.6400

3.6400

QSE

10,542

12,650

14,800

Kuwait

KWD/USD

0.3016

0.3040

0.3040

KWSE

6,504

7,000

7,000

Morocco

MAD/EUR

10.66

11.25

11.50

MADEX

9,374

9,950

10,000

Oman

OMR/USD

0.3850

0.3845

0.3845

MSM30

3,709

4,500

5,200

Tunisia

TND/EUR

3.29

3.60

3.80

TUNINDEX

7,182

7,150

7,250

Jordan

JOD/USD

0.71

0.71

0.71

ASE

1,794

2,050

2,350

Lebanon

LBP/USD

1505.7

7,500

7,500

BLOM

869

875

875

Bahrain

BHD/USD

0.3770

0.3761

0.3761

BHSE

1,454

1,850

2,100

Sources: Bloomberg, Capital Economics


Jason Tuvey, Senior Emerging Markets Economist, jason.tuvey@capitaleconomics.com