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Country Forecast Middle East and Africa June 2018

Country Forecast Middle East and Africa June 2018

  • June 2018
  • ID: 2201022
  • Format: PDF
  • The Economist Intelligence Unit


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Middle East and North Africa

  • The decision taken by Donald Trump, the US president, in early May to withdraw from the 2015 Iran nuclear deal is likely to have major reverberations across the region-not least in Iran itself. Hardline opponents of the president, Hassan Rouhani, are likely to seize upon it as a way of stiffening their resistance to the president's push for economic liberalisation and social reform. In addition, if Iran follows through with its threat to restart its nuclear enrichment programme, it will increase the threat of targeted Israeli air strikes.
  • Regional instability, which has worsened since 2011, has been exacerbated by the deepening regional rivalry between Shia Iran and the Sunni Arab Gulf monarchies (led by Saudi Arabia). This enmity has prolonged the civil war in Syria-where the two sides have backed opposing forces-and played a direct role in Saudi Arabia's costly military intervention in Yemen (where it has been fighting to oust the Iranian-backed Houthis). It is also one of the factors under-lying the ongoing boycott of Qatar by three Gulf states (Saudi Arabia, the UAE and Bahrain), together with Egypt.
  • Although the recent recovery in oil prices will provide some welcome relief, the region's major oil producers have been engaged in the biggest shrinking of the state's role in the economy since the late 1990s. This has included cuts to capital spending and politically sensitive subsidies, as well as growing interest in private financing in infrastructure. But fear of provoking social and labour unrest will slow governments' efforts to pare back their bloated state bureaucracies.
  • Real GDP growth in the Middle East and North Africa (MENA) region will remain sluggish in 2018-19, at an annual average of 2.4%. Although global oil prices will stage a significant rebound compared with their 2016 low point, the recovery will not be sufficiently strong to enable governments to substantially ease their austerity drives. The need for greater economic diversification, together with an expanded role for the private sector, will remain a key driver of economic policy.
  • After widening in 2018 on the back of higher oil prices and export revenue, the region's aggregate current-account surplus will edge down again in 2019, reflecting rising expenditure on imports and a slight dip in oil prices.
  • Debt issuance by the region's oil exporters has surged since 2016, as governments seek to finance their wide fiscal deficits. However, The Economist Intelligence Unit expects rising perceptions of political risk, together with a continued tightening in US monetary policy, to result in higher yields among emerging-market issuers in 2018-19.

Sub-Saharan Africa

  • Elections are now a regular feature of political life across much of Sub-Saharan Africa (SSA). Recent leadership changes in a number of countries-including Angola, Ethiopia, South Africa and Zimbabwe-have also contributed to a sense of political renewal. Nonetheless, genuine democratic accountability is yet to emerge across much of the continent, underlined by the fact that the same ruling party has governed for over a decade in around two-thirds of countries. Irregularities in the conduct of elections are still a frequent problem.
  • The risks posed by violent Africa-based Islamist groups will continue to dominate the region's political agenda in the coming years. The groups include al-Qaida in the Islamic Maghreb (AQIM), which is active across the Sahel; Somalia's al-Shabab; and Boko Haram in Nigeria, Niger, Cameroon and Chad.
  • It is unlikely that popular revolt will topple governments in Africa. However, social unrest will become a more common feature as urbanisation gains pace and the use of social media continues to spread. The military will also continue to play an influential role in many countries, as underlined by the army's role in toppling Zimbabwe's former president, Robert Mugabe.
  • Regional real GDP growth will edge up from 3.2% in 2017 to an annual average of 3.7% in 2018-19. Given the region's heavy dependence on commodity exports, fluctuating global prices will continue to create problems in terms of economic management. But with oil prices forecast to average US$73/barrel in 2018-19 (up from US$44/b in 2016), there will be some modest scope for the region's oil exporters to adopt a slightly less restrictive fiscal stance.
  • Structural reforms will help to bolster economic activity, along with a further strengthening of ties with faster-growing economies in Asia. Nonetheless, even if SSA returned to sustained annual growth exceeding 4%, this would still be insufficient to have a major impact on poverty levels in most countries.
  • The current account will remain in deficit in 2018-19. The narrowing in 2017 was driven by lower spending on imports, in line with subdued domestic demand. Higher oil prices will boost the earnings of the region's oil exporters in 2018-19. But a strengthening of economic growth will push up demand for imports, causing the regional deficit to widen in 2019.
  • The external debt of the region is forecast to remain on an upward trajectory, rising from an estimated US$503bn at end-2017 to US$581bn at end-2019. Both bilateral and multilateral lending will continue to increase in response to ongoing demand for funds to support infrastructure and social spending.

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