MENA Macroeconomic Update:

Prospects For Post-Covid-19 Recovery

Thursday, 1st October 2020
Disclaimer

THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH
and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are
solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch
Ratings’ analysts do not share data or information with Fitch Solutions Country Risk & Industry
Research.

1
Agenda

Global Growth To Rebound In 2021 US Elections Could Shift US Policy

1 MENA To Underperform 4 Towards MENA In 2021

Country Deep-Dives:
MENA Lockdowns Eased From March
2 But Still Far From Fully Lifted 5 A Closer Look At Macro Prospects
For The GCC States & Egypt

Shallow Oil Price Recovery

3 Weakens MENA Outlook Beyond Covid-19 6 Q&A

2
1
MENA Outlook
Regional Impact Of
Covid-19, Oil Price
Weakness & US
Elections
Global Growth To Rebound In 2021, MENA To Underperform
Global Economy To See Real GDP Rebound Next Year MENA To Underperform Most Other EM Regions
Global – Real GDP, % y-o-y Emerging Markets (EM) – Real GDP, % y-o-y

World DM EM EM Asia SSA LatAm MENA EM EM Europe

6 8

4 6

4
2
2
0
0
-2
-2

-4 -4

-6 -6

-8
-8
2020e

2021f
2016

2017

2018

2019

-10
2016 2017 2018 2019 2020e 2021f
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

4
Sluggish Prospects For A Regional Post-Covid-19 Recovery
MENA Economy To Remain Well Below Pre-Covid-19 Levels In 2021
MENA – PP Contr. To Real GDP Growth & Total Growth, %
• We forecast MENA aggregate real GDP
GCC Iraq Iran Algeria Egypt Other Total growth at 3.5% in 2021, following a
4 contraction of 5.1% in 2020.

3
• Iran accounts for a large share of the gains
2 projected for next year, as we expect a Biden
win in the US November elections to result in
1
sanctions relief for the Islamic Republic.
0

-1 • The outlook for other oil producers appears

sluggish, as only moderate oil price
-2 increases are likely to result in limited oil
output growth and continued fiscal restraint.
-3

-4
• Elsewhere in the region, limited policy
-5 flexibility and social/political instability are
weighing on prospects for a post-Covid-19
-6 recovery.
2018 2019 2020e 2021f
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions

5
MENA Lockdowns Eased From March, But Still Far From Fully Lifted
Some Countries Seeing Second Waves Of Covid-19 Restrictions Unlikely To Fully Lift Until Vaccine Is Ready
MENA (Selected) – New Covid-19 Cases, 7-Day Moving Average MENA (Selected) – Government Stringency Index (0-100, 100 = Most Stringent)

IRN IRQ KSA UAE KUW IRN IRQ KSA UAE KUW
OMA QAT EGY JOR MOR OMA QAT EGY JOR MOR
5000 100
4500 90
4000 80
3500 70
3000 60
2500 50
2000 40
1500 30
1000 20
500 10
0 0

01-Apr
11-Apr
21-Apr

09-Aug
19-Aug
29-Aug
08-Sep
18-Sep
10-Jun
20-Jun
30-Jun
10-Jul
20-Jul
30-Jul
10-Apr
20-Apr
30-Apr

01-Feb
11-Feb
21-Feb
08-Aug
18-Aug
28-Aug
07-Sep
17-Sep
27-Sep

02-Mar
12-Mar
22-Mar
09-Jun
19-Jun
29-Jun
09-Jul
19-Jul
29-Jul

01-May
11-May
21-May
31-May
10-May
20-May
30-May
01-Mar
11-Mar
21-Mar
31-Mar

Note: Data through September 30. Source: ECDC, Fitch Solutions Note: Indicates strictness of lockdown measures. Source: Oxford University, Fitch Solutions

6
Activity Rebounding, But Businesses Still In Consolidation Mode
Recent PMI Slippage Points To Non-Linear Recovery
MENA (Selected) – Purchasing Managers’ Index (PMI)

Saudi Arabia Egypt UAE Qatar Lebanon

65

60

55

50

45

40

35

30

25
Oct-18

Oct-19
Apr-19

Apr-20
Jul-18

Jul-19

Jul-20
Nov-18

Dec-18

Nov-19

Dec-19
May-18

May-19

May-20
Aug-18

Sep-18

Aug-19

Sep-19

Aug-20
Jun-18

Jan-19

Mar-19

Jun-19

Jan-20

Mar-20

Jun-20
Feb-19

Feb-20
Note: 50-level separates expansion from contraction. Source: Emirates NBD, Qatar Financial Centre, Blom Bank, Fitch Solutions

7
Shallow Oil Price Recovery Weakens MENA Outlook Beyond Covid-19
Moderate Outlook For Oil Prices (And Revenues) Oil Exporters Likely To Limit Fiscal Spending
Price Of Brent Crude, USD/bbl & 10-Year Ave GCC – Hydrocarbon Output Growth (RHS) & Fiscal Spending Growth (LHS)

Brent crude, USD/bbl 10-year ave (2010-19) O&G output, USD % y-o-y (LHS) Govt spending, % y-o-y (RHS)
85 60 40

80
40 30
75
72
20 20
70
64
65 0 10

60 58
55 55 -20 0
55 53
51
50 -40 -10
44
45
-60 -20

2019e
2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018
40
2017 2018 2019 2020f 2021f 2022f 2023f 2024f
f = Fitch Solutions forecast. Source: EIA, Bloomberg, Fitch Solutions e = Fitch Solutions estimate. Source: UN, national sources, Fitch Solutions

8
US Elections Could Shift US Policy Towards MENA In 2021
US Presidential Candidate Joe Biden’s Statements On MENA (Selected) • We expect Joe Biden will win the US
presidential elections in November 2020.
Topic Date/Platform Statement
'If Tehran returns to compliance with the [nuclear] deal, President • Biden would likely re-join the Iran nuclear
Iran/ N/A (campaign Biden would re-enter the agreement, using hard-nosed diplomacy
Nuclear deal website) and support from our allies to strengthen and extend it, while more
deal, but struggle to extract further
effectively pushing back against Iran's other destabilizing activities.' concessions from Tehran in follow-on talks.

Aug-01 2020
Saudi Arabia/ 'I would end US support for the disastrous Saudi-led war in Yemen • Biden would probably introduce more
(Submission to
Yemen and order a reassessment of our relationship with Saudi Arabia.'
CFP) conditionality to US partnerships with Arab
states, but avoid causing major rifts with key
Sep-13 2020 'America will...work closely with Israel to ensure it can defend itself
(CNN op-ed) against Iran and its proxies.'
allies in the region.
Israel
Apr-29 2020
(Fundraiser)
'Now that it's done, I would not move the embassy back to Tel Aviv.' • Biden would be highly reluctant to get the US
involved militarily in MENA conflict zones.
Israel/ 'My administration will urge both [Palestinians and Israelis] to take
Jul-30 2019
Palestinian steps to keep the prospect of a two-state outcome alive...Israeli
(CFR interview) • Conversely, should Trump secure re-election,
conflict leaders should stop the expansion of West Bank settlements.'
then he would likely continue his maximum
'Biden will end the forever wars in Afghanistan and the Middle
pressure campaign against Iran, while
US forces in N/A (campaign East...Biden will bring the vast majority of our troops home from
MENA website) Afghanistan and narrowly focus our mission on Al-Qaeda and ISIS. And maintaining his steadfast support for Arab
he will end our support for the Saudi-led war in Yemen.' state allies and Israel.
Source: joebiden.com, CfR, CNN, Fitch Solutions

9
2
Country Deep-
Dives
A Closer Look At
Growth Prospects In
The GCC States &
Egypt
Saudi Arabia: Fiscal Consolidation To Dampen Post-Covid-19 Rebound
Recovery From Q220 Nadir Will Be Tepid VAT Hike Set To Weaken Domestic Demand
Saudi Arabia – Real GDP, % y-o-y Saudi Arabia – Inflation, % y-o-y

Total Oil Non-oil private sector Non-oil public sector 8

VAT hike
8 6
6 VAT introduction
4 4
2
2
0
-2 0
-4
-6 -2
-8
-4
-10

Oct-16

Oct-17

Oct-18

Oct-19
Apr-16

Apr-17

Apr-18

Apr-19

Apr-20
Dec-16

Dec-17

Dec-18

Dec-19
Jun-16
Aug-16

Jun-17
Aug-17

Jun-18
Aug-18

Jun-19
Aug-19

Jun-20
Aug-20
Feb-16

Feb-17

Feb-18

Feb-19

Feb-20
-12
Q118 Q218 Q318 Q418 Q119 Q219 Q319 Q419 Q120 Q220

• We forecast Saudi growth at 2.7% in 2021, following a contraction • …constraining non-oil activity beyond the lifting of lockdown
of 4.3% in 2020, comparing fairly poorly to the rest of the region. measures.
• Fiscal measures such as capex cuts and VAT hikes will hit • Oil output will remain capped by OPEC+ supply restrictions,
investment and consumption… declining markedly this year, and rising moderately in 2021.

Source: GaStat, Fitch Solutions Source: SAMA, Fitch Solutions

11
UAE: Recovery Fairly Sluggish, But Some Scope For Optimism
UAE Set For Moderate Economic Recovery In 2021 Unwinding OPEC+ Cuts A Tailwind For Abu Dhabi
UAE – Real GDP, % y-o-y UAE – Crude Oil Production

Dubai Abu Dhabi UAE Monthly Oil Production, mn b/d Monthly Oil Production, %, y-o-y
12 5 30

8 20
4 10
4
0
0 3 -10
-4 -20
2 -30
-8

Oct-15

Oct-16

Oct-17

Oct-18

Oct-19
Apr-15
Jul-15

Apr-16
Jul-16

Apr-17
Jul-17

Apr-18
Jul-18

Apr-19
Jul-19

Apr-20
Jul-20
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20
2020f

2021f

2022f
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

• The UAE economy is unlikely to return to pre-pandemic levels in
2021: we forecast growth of 4.0% next year, following a 6.1%
contraction in 2020.
• Relatively tight fiscal policy and a sluggish global economic
recovery which will weigh on domestic and external demand.
f = Fitch Solutions forecast. Source: FCSA, DED, SCAD, Fitch Solutions
• At the same time, though, we still see scope for pockets of
robust expansion. Dubai will host the Expo in Q421, which will
likely prompt expansion plans among firms in the run-up.
• For Abu Dhabi, we expect a gradual easing of OPEC+ supply
restrictions which will lead to a ramp-up in crude output.
Note: OPEC data refers to secondary sources. Source: OPEC, Fitch Solutions

12
Qatar & Kuwait: Muddling Through, But For Different Reasons
Anticipation For World Cup Could Offer Qatar Tailwinds Kuwait To Benefit From Easing OPEC+ Restrictions
Russia – Travel Exports, USDmn Kuwait – Crude Oil Production

2,500 Crude Production, bbl/day (LHS) Crude Production, % y-o-y (RHS)

2018 FIFA
2,000 World Cup 4 20

1,500 10

0
1,000 3
-10
500
-20
0 2 -30
May-17
Jul-17

May-18
Jul-18

May-19
Jul-19
Nov-17

Nov-18

Nov-19
Sep-17

Sep-18

Sep-19
Jan-17
Mar-17

Jan-18
Mar-18

Jan-19
Mar-19

Jan-20

Oct-16

Oct-17

Oct-18

Oct-19
Apr-16
Jul-16

Apr-17
Jul-17

Apr-18
Jul-18

Apr-19
Jul-19

Apr-20
Jul-20
Jan-16

Jan-17

Jan-18

Jan-19

Jan-20
• We expect Qatar to post real GDP growth of 3.1% in 2021, from • For Kuwait, we forecast 3.1% growth in real GDP in 2021
a 2.2% contraction in 2020. compared to a 5.5% contraction in 2020, primarily driven by
easing OPEC+ supply restrictions.
• Non-oil activity will benefit from firms’ expansion plans in the run-
up to the 2022 FIFA World Cup, which should prompt a • Business activity will be dampened by austerity measures we are
temporary boost in tourist arrivals. expecting will be introduced in the upcoming budget.
Source: CBR, Fitch Solutions Note: OPEC data refers to secondary sources. Source: OPEC, Fitch Solutions

13
Bahrain & Oman: Fiscal Constraints Will Weigh On Recovery
Fiscal Break-Evens Highest For Bahrain, Oman
GCC – 2020 Fiscal Breakeven Oil Price Vs Spot Price & Projected 2020 Ave Price, USD/bbl • Bahrain and Oman’s fiscal positions are by far the
weakest in the GCC, as evidenced by their high
2020 Fiscal Break-Even Fitch Solutions Annual Forecast Spot
fiscal break-even oil prices.
100

80 • Lower oil prices will accelerate Bahrain’s fiscal

reforms initially introduced in 2018 in exchange for
a USD10bn bailout package from its Gulf peers.
60

40 • Oman, in contrast, does not benefit from official

GCC funding and may have to implement
substantial fiscal adjustments. The government
20 has already doubled taxes on alcoholic drinks in
July and reduced civil servants’ wages.
0
Oman

Qatar
Bahrain

Saudi Arabia

UAE

Kuwait
• We expect Bahraini real GDP will grow by just
2.7% in 2021, up from a 4.2% contraction in 2020.
Meanwhile, the Omani economy will expand by
3.1% next year after a 5.8% contraction in 2020.
Note: Fiscal break-evens are calculated by the IMF (calculations made prior to the outbreak of Covid-19 and subsequent
budget revisions). Source: IMF, Bloomberg, Fitch Solutions

14
Egypt: Growth Rebounding, But Vulnerabilities Persist
Mobility Data Suggest Worst Of Virus Impact Has Passed External Pressures Have Eased, For Now
Egypt – Visits To Locations Compared To Baseline, rolling 7-day ave Egypt - Banks' Net Foreign Assets (EGPbn), CBE Reserves & Non-Resident T-Bill
Holdings (USDbn)

Retail/Recreation Grocery/Pharmacy Transit stations Workplaces Banks' NFAs (RHS) CBE reserves (LHS)
Non-res. T-bill holdings (LHS)
40 50 150
20 100
40
0 50
30
-20 0
20
-40 -50
-60 10 -100
-80 0 -150

Jul-17

Jul-18

Jul-19
Nov-17

Nov-18

Nov-19
07-Apr
17-Apr
27-Apr

May-17

May-18

May-19

May-20
06-Jun
16-Jun
26-Jun
06-Jul
16-Jul
26-Jul
05-Aug
15-Aug
25-Aug
04-Sep
14-Sep
24-Sep

Jan-17
Mar-17

Sep-17

Jan-18
Mar-18

Sep-18

Jan-19
Mar-19

Sep-19

Jan-20
Mar-20
17-Feb
27-Feb
08-Mar
18-Mar
28-Mar

07-May
17-May
27-May

• Latest CBE estimates imply Egypt growth came in at 3.5% in • Weak prospects for tourism and investment and remittance
FY2019/20. We project growth at 3.4% in FY2020/21. inflows will continue to dampen Egypt’s growth performance.
• PMI and Google mobility data point to widespread disruption to • IMF funding and eurobond issuance will support the country’s
local activity in Q2, though conditions are now easing. external position, though risks of renewed volatility persist.

Source: Baseline = median value from Jan 3 – Feb 6 2020. Source: Google, Fitch Solutions Source: CBE, Fitch Solutions

15
Q&A
Connected Thinking in
Challenging Times

Coronavirus research from Fitch Ratings,

Fitch Solutions Country Risk & Industry Research,
and Fitch Solutions Leveraged Finance Intelligence
is now available to all on Fitch Connect.

Find out more at fitchsolutions.com/coronavirus

18
Global Pulse Survey | 6th Edition

19
Learn More
Fitch Solutions helps clients to excel at managing their credit risk, gain deeper insights into the debt and
fixed income markets, and get comprehensive intelligence about the macroeconomic environment. fitchsolutions.com
Powered by Fitch Connect, our Country Risk & Industry Research expertise helps you make clear-
sighted business decisions and understand the opportunities and risks across global markets.

To find out more, please contact your Account Manager or a member of our Client Services Team. New York London
33 Whitehall Street 30 North Colonnade
New York, NY Canary Wharf
New York London 10004 London, E14 5GN

T +1 212 908 0800 T +44 (0)20 3530 2400

usaclientservices@fitchsolutions.com emeaclientservices@fitchsolutions.com

Hong Kong Tokyo

T +852 2263 9999 T +81 3 3288 2715
asiaclient.services@fitchsolutions.com asiaclient.services@fitchsolutions.com

Singapore
T +65 6796 7231
asiaclient.services@fitchsolutions.com

Copyright © 2019 Fitch Solutions, Inc., Fitch Ratings,. Fitch Solutions Group, Inc. and their subsidiaries 20

FR 16x9 2019 v13