mena quarterly - emirates nbd · 2014-04-24 · q1 14 relative to last year, averaging 2.7mn bpd,...

Quarterly 24 April 2014

Khatija Haque

Head of MENA Research

+971 4 230 7803

[email protected]

Jean Paul Pigat

Economist

+971 4 230 7807

[email protected]

MENA Quarterly

The GCC economies have enjoyed a solid first quarter, notwithstanding the

wobbles in emerging markets and increased geopolitical uncertainty in Eastern

Europe. The UAE’s economy has continued to expand, driven by the non-oil

sectors, and this has been reflected in an upgrade to the IMF’s growth forecast for

2014, to 4.4% from 4.0% previously.

We have revised up our 2014 growth forecast for Qatar to 6.3% from 5.2%, on the

back of stronger than expected 2013 growth and a substantially higher public

investment budget for this year. The IMF also upgraded growth forecasts for Qatar

and Bahrain this year, but downgraded Saudi Arabia in its latest World Economic

Outlook.

In Dubai, financial markets have continued to reflect improving economic

fundamentals. The DFMGI is the best performing equity index in the world year-to-

date. On the credit side, Dubai’s CDS touched a five-year low earlier this month, as

concerns about the emirate’s ability to service its debt have receded for the time

being.

Our regional weighted average 2014 real GDP growth forecast for MENA’s oil

importers has dropped to 2.2% this quarter, largely on the back of downward

revisions to our projections for Morocco and Lebanon. Oddly enough, this has

occurred at a time when the medium-term outlook for these economies has

improved, with our regional growth forecasts for 2015 standing at 3.6%.

Presidential elections set for late May will be an important milestone in Egypt’s

transition, with Field Marshall Abdel Fattah el-Sisi widely expected to win. Although

there will still be some event risk associated with parliamentary elections that will be

held in the latter part of the year, the presidential vote should nevertheless help

provide greater clarity on the policy outlook.

GCC Transfers to MENA Increasingly Important

Aggregate Breakdown of Current Transfers for Egypt, Morocco and Jordan

Source: Emirates NBD Research

0

2000

4000

6000

8000

10000

12000

14000

Q110 Q410 Q311 Q212 Q113 Q413

Aid

Remittances

US

Dm

n

7 3

8 9 5

15 14

Figures represent % of total transfers comprised of aid

14 3 3 3

21 17 10

39

25

Contents

GCC Overview .......................................................................................................................... Page 3

MENA Oil Importers ................................................................................................................ Page 5

Algeria .......................................................................................................................................... Page 7

Bahrain ......................................................................................................................................... Page 8

Egypt............................................................................................................................................. Page 9

Iraq .............................................................................................................................................. Page 10

Jordan ........................................................................................................................................ Page 11

Kuwait ........................................................................................................................................ Page 12

Lebanon ..................................................................................................................................... Page 13

Libya .......................................................................................................................................... Page 14

Morocco ..................................................................................................................................... Page 15

Oman .......................................................................................................................................... Page 16

Qatar ........................................................................................................................................... Page 17

Saudi Arabia ............................................................................................................................. Page 18

Tunisia........................................................................................................................................ Page 19

UAE ............................................................................................................................................ Page 20

UAE - Dubai ............................................................................................................................. Page 21

Key Economic Forecasts..................................................................................................... Page 22

GCC Overview

The GCC economies have enjoyed a solid first quarter, notwithstanding the wobbles in emerging markets and increased geopolitical uncertainty in Eastern Europe. The UAE’s economy has continued to expand, driven by the non-oil sectors, and this has been reflected in an upgrade to the IMF’s growth forecast for 2014, to 4.4% from 4.0% previously. The IMF also upgraded growth forecasts for Qatar and Bahrain this year, but downgraded Saudi Arabia in its latest World Economic Outlook.

Oil production stable in Q1 2014

Oil production from GCC OPEC members was broadly stable in

Q1 2014, in line with our expectations, averaging just over 16mn

bpd. Saudi Arabia produced 9.7mn bpd on average in the first

quarter, according to Bloomberg estimates, nearly 2% higher than

average 2013 output. The UAE’s oil production eased slightly in

Q1 14 relative to last year, averaging 2.7mn bpd, as did Kuwait’s

oil production (2.9mn bpd in Q1 14). We note that the Bloomberg

consensus forecast for the average oil price in 2014 is unchanged

since the start of the year at around USD100 /bbl (average of WTI

and Brent).

Oil production data year-to-date support our view that the oil sector

is unlikely to contribute significantly to overall GDP growth in the

region this year, and that economic growth will come almost

entirely from the non-oil sectors.

IMF upgrades 2014 growth forecast for UAE…

This was borne out by the purchasing managers’ index (PMI) data

in Q1 2014, which showed record non-oil sector expansion in the

UAE, and strong but slowing growth in Saudi Arabia. The UAE’s

PMI reached a series high of 57.7 in March, on the back of higher

output and new order growth. Although export growth is strong,

domestic demand appears to be the main driver of activity. The

IMF also highlighted the strength of domestic consumption,

expected investment related to Expo 2020 and rising real estate

prices as factors that would support growth in the UAE over the

next few years, and raised its 2014 growth forecast to 4.4% from

3.9% previously. This upgrade brings the Fund’s estimate in line

with our own 4.5% growth forecast for this year.

…Qatar and Bahrain

The IMF also upgraded forecasts for Qatar’s growth in 2014 (to

5.9% from 5.0%) and 2015 (to 7.1% from 6.6%), on the strength of

the public investment program ahead of the 2022 FIFA World Cup.

Indeed, the 2014/ 2015 budget makes provision for a substantial

17% increase in development spending on ‘key projects’,

compared to last year’s budget. While some of this will be spent

on general infrastructure and transport projects, construction will

also begin on seven new football stadiums specifically for the

World Cup, according to the government’s statement. However,

given the reported delays in execution of infrastructure spend so

far, we think there is a significant risk of under-spending on the

capex front.

GCC oil output and reference price

Source: Bloomberg, Emirates NBD Research

IMF 2014 GDP growth forecast revisions

Source: IMF WEO, Emirates NBD Research

GCC PMIs

Source: HSBC/ Markit, Emirates NBD Research

10

12

14

16

18

20

94

96

98

100

102

104

106

108

110

112

114

Jan-13 May-13 Sep-13 Jan-14

mn b

arr

els

per

day

US

D p

er

barr

el

GCC oil production (excl Oman, Bahrain)

OPEC reference price

0

1

2

3

4

5

6

7

KSA UAE Qatar Kuwait Oman Bahrain

%

Oct-13 Apr-14

50

55

60

65


UAE Saudi Arabia

The Fund’s 1.4pp upward revision of Bahrain’s real growth

forecast was the biggest of all the GCC states, and likely reflects

2013’s better than expected economic performance. Bahrain’s

economy expanded 5.5% last year, according to data from Haver

Analytics, higher than our 4.8% forecast and the IMF’s 4.4%

estimate. The big surprise was the 14.8% expansion of the

hydrocarbons sector (we had penciled in 8% growth, reversing the

decline in 2012). The hospitality sector also enjoyed stronger than

expected growth in 2013 (+9.5%). We expect growth to slow to

4.3% in 2014, mainly on slower hydrocarbon growth.

The only GCC country that was downgraded by the IMF this month

was Saudi Arabia; the fund cut its growth forecast for 2014 by 0.3

percentage points to 4.1%. Oil production in the kingdom has been

broadly stable in Q1 2014 at 9.7mn bpd, 2% higher than 2013

average output. Non-oil sector growth remains robust, but the

pace of expansion has slowed in the first quarter of this year. The

PMI reading fell to 57.0 in March, its lowest level in five months.

Inflation surprises on the downside in KSA

Inflation in Saudi Arabia has also eased, falling to 2.6% y/y in

March, from nearly 4% a year ago. Higher housing costs have

been offset by easing food inflation and lower transport costs.

However, companies in Saudi Arabia continue to report rising

labour costs as the authorities have cracked down on immigrant

workers, and we do expect these higher input costs to feed

through to consumer inflation during the course of this year.

In contrast to Saudi Arabia, consumer inflation in the UAE has

been on a steady upward trajectory since the beginning of last

year. The annual inflation rate is still relatively low at 1.9% y/y in

March, but we expect it to continue rising this year as recent higher

housing costs feed through to the official index. We expect

average inflation to reach 3.0% in 2014, from 1.1% in 2013,

although the y/y rate could top 4% by December.

Inflation

Source: Haver Analytics, Emirates NBD Research

-1

0

1

2

3

4

5

6

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

% y

/y

UAE Qatar KSA

MENA Oil Importers

Our regional weighted average 2014 real GDP growth forecast

for MENA’s oil importers has dropped to 2.2% this quarter,

largely on the back of downward revisions to our projections

for Morocco and Lebanon. Oddly enough, this has occurred at

a time when the medium-term outlook for these economies

has improved, with our regional growth forecasts for 2015

standing at 3.6%. In recent quarters, there has certainly been

some progress in reining in current and fiscal account

deficits, and bolstering balance of payments stability.

Combined with a massive influx in bilateral and multilateral

aid, sentiment across the region appears stronger now than at

any point since late 2010.

Unfortunately the process of seeing these gains in consumer

confidence and local financial markets (equity markets are

uniformly up, while credit spreads have tightened) translate into

real economic activity and job creation will not be immediate.

Through the first three months of this year, higher-frequency

economic data would seem to indicate that not a single economy is

growing faster than the low-single digits. As of March, the

purchasing managers’ indices for Egypt and Lebanon came in at

49.8 and 46.2 respectively, suggesting the regional manufacturing

sector remains fundamentally weak. Although 2014 is also

supposed to be the year where we see a synchronized global

economic recovery, the external environment does not yet appear

strong enough to help spur a revival in trade. Indeed, latest data

shows exports (measured on a 3mmavg basis to dampen volatility)

declining -1.4% y/y, -10.5%, and -36.5% in Tunisia, Egypt and

Lebanon respectively.

GCC aid increasingly important

There is little doubt the main cause of the improvement in

sentiment in recent months has been the surge in external

financial assistance, particularly in the form of aid transfers. Latest

balance of payments figures show the share of aid as a

percentage of total current transfers (for Egypt, Morocco and

Jordan) hitting 25% and 39% in Q4 and Q3 2013, compared to 9%

and 8% in the same time period in 2010. Tunisia has been the

biggest beneficiary of multilateral aid, having received pledges

from the World Bank, European Investment Bank and African

Development Bank in recent months. Tunisia and Jordan have

also received bond guarantees from the United States, which will

help these sovereigns tap markets this year to cover their external

financing requirements.

Yet the most important development in recent quarters has not

been pledges of aid from global development banks, but rather the

increasing role that capital from the GCC is playing in boosting

economic stability in MENA’s oil importers. Direct aid transfers

from the Gulf to Egypt have been well documented, and helped

avert a full blown balance of payments crisis in that country, while

Qatar has also recently extended USD500mn to Morocco.

Looking ahead, one of the key trends we expect to see over the

coming years is a fundamental reorientation of this region towards

Real GDP Growth Forecasts


Hotel Occupancy

Source: STR Global, Emirates NBD Research

CDS


-2

0

2

4

6

8

10

2008 2009 2010 2011 2012 2013 2014f 2015f

Egypt

Morocco

Tunisia

Lebanon

Jordan

% y

/y

20

30

40

50

60

70

80

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14

LebanonTunisiaMoroccoJordan

%

0

100

200

300

400

500

600

700

800

900

1000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Egypt

Lebanon

bps

the GCC. Aid is of course one such channel, in addition to

remittances which have historically acted as a major source of

external capital. More importantly perhaps, we are also expecting

to see increased direct investment from state-linked firms in the

Gulf, which could help compensate for weaker FDI inflows from

Europe (particularly important for North Africa given their relatively

large exposure to the Eurozone compared to the Levant). Recent

months have already seen a pledge by UAE developer Arabtec to

help construct one million new housing units in Egypt, while a joint

fund set up by several GCC states is planning on investing heavily

in Moroccan tourism infrastructure.

Electoral cycle in full swing

The remainder of 2014 will see a busy electoral cycle in MENA’s

oil importers, with parliamentary elections set to be held in

Lebanon, Egypt, Iraq and Tunisia, while presidential elections are

also going to take place in Egypt and Lebanon (the latter were just

beginning at the time of going to press). The implications of these

national votes on the region’s growth outlook should not be

underestimated. Not only have elections in recent years been

characterized by an increase in security risks, but they also cloud

the policy outlook. In surveys of global investors such as the World

Economic Forum’s Competitiveness Report, it is ‘policy instability’

which ranks as the top concern in markets such as Egypt and

Tunisia, rather than issues such as corruption or crime and theft.

With elections taking place on a more frequent basis across the

region, the prospects for a stronger revival in longer-term foreign

investment inflows could be undermined.

In this sense, the policy environment this year is clearer in markets

such as Jordan and Morocco. Not only are there no elections set

to take place, but both economies also benefit from having signed

onto IMF agreements which are helping anchor reform momentum.

The broader domestic political backdrop is also considerably more

stable in these two countries compared to regional peers, despite

the fact that a civil war is taking place on Jordan’s border. As we

have mentioned in previous research notes, this has been crucial

in helping to support the tourism industries in both markets, with

latest data showing occupancy rates and RevPAR far

outperforming peers in Lebanon, Tunisia and Egypt.

This is not to say that it will all be smooth sailing for Jordan and

Morocco. Both countries are finding that pushing ahead with

reforms at a time of weak growth is, unsurprisingly, being met with

resistance. In early February Jordan backtracked on its plans to

introduce a special 16% tax on mobile phones due to opposition to

the plan, while Morocco has also seen an uptick in protests on the

back of the government’s pledge to introduce pension reforms and

put a freeze on public sector hiring. Although these reforms will

undoubtedly bring longer-term benefits, authorities in Amman and

Rabat may calculate that the short-term costs of sticking to their

agendas are too large.

Budget Balances


Purchasing Managers’ Indices

Source: Markit/ HSBC, Emirates NBD Research

FX Reserves

Source: Haver Analytics, Emirates NBD Researc

-12

-10

-8

-6

-4

-2

0

Tunisia Jordan Egypt Morocco Lebanon

2010

2014

% o

f G

DP

36

38

40

42

44

46

48

50

52

Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14

Egypt

Lebanon

-60

-40

-20

0

20

40

60

80

Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14

Tunisia

Egypt

Jordan

Morocco

% y

/y

Algeria Bouteflika remains in power

Algeria held presidential elections in mid-April, which

unsurprisingly saw Abdelaziz Bouteflika win his fourth consecutive

term, despite having appeared only a limited number of times in

public in recent months due to health concerns. Large sections of

the opposition had boycotted the election, resulting in Bouteflika

winning over 80% of the vote according to the interior ministry.

While questions are increasingly being raised about the prospects

for a change in leadership this year, this vote highlights a strong

preference for continuity amongst key sections of Algerian society.

Reform agenda on the cards?

This is not to say there will be no changes in 2014. There have

been tentative signs that the government is seeking to push ahead

with a small reform agenda, having removed a ban on consumer

credit, introduced a new law for FDI in the hydrocarbon sector, and

hinted at a gradual opening of the country’s stock market. While

we do not think the country will suddenly become a magnet for

foreign investors in the near term, there is some reason for

optimism. In particular, we will be looking at the extent to which the

ongoing crisis between Ukraine and Russia results in a renewed

effort by European states to diversify their gas import partners. In

our view, Algeria could be a major beneficiary from any decision to

cut back on Russian energy imports.

External surpluses diminishing

The need to begin fostering greater foreign investment inflows is

clearly evident in latest balance of payments data. In 2013, Algeria

posted a current account surplus of only USD850mn (equivalent to

approximately 0.3% of GDP), which was the second lowest yearly

outturn in our time series dating back to 2000. In Q2 and Q3, the

current account actually posted deficits of USD1.6bn and

USD500mn respectively.

This was almost entirely due to a sharp narrowing in the trade

surplus which fell to USD2.7bn, compared to USD13.0bn the year

before. Only 2009 saw a lower surplus, however this was at a time

when energy prices had temporarily collapsed due to the global

financial crisis. As hydrocarbons account for approximately 93% of

total export revenues, the current account will soon begin posting

deficits if the ongoing decline in output is not reversed, or other

sources of export revenue not found.

Oil Production


Current Account


Industrial Production


-10

-5

0

5

10

15

20

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Jan-07 Feb-08 Mar-09 Apr-10 May-11 Jun-12 Jul-13

mn b/d

% y/y (rhs)

-10

-5

0

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010 2011 2012 2013

Transfers

Income

Trade

US

Dbn

-8

-6

-4

-2

0

2

4

6

8

10

Q103 Q304 Q106 Q307 Q109 Q310 Q112 Q313

% y

/y

Bahrain

Economy grew 5.5% in 2013

Bahrain’s economy expanded 5.5% last year, according to official

data, higher than our 4.8% forecast and the IMF’s 4.4% estimate.

The positive surprise was the 14.8% expansion of the

hydrocarbons sector (we had penciled in 8% growth, reversing the

decline in 2012). The hospitality sector also enjoyed stronger than

expected growth in 2013 (+9.5%).

Earlier this month, the IMF upgraded its growth forecasts for 2014

by 1.4pp (to 4.7%) in the latest World Economic Outlook. We

retain our more slightly more conservative 4.3% growth forecast

for Bahrain this year, as we expect slower expansion in the oil

sector relative to 2013.

Current account surplus lower than expected

Bahrain’s current account surplus widened to USD 2.6bn (7.8% of

GDP) last year, but was lower than the USD 3.8bn we had

forecast. Oil imports were higher than we had anticipated, as were

outflows in the net income component, and remittances. We have

revised down our forecast for the current account surplus in 2014

and 2015 to 6.0% of GDP and 5.0% of GDP respectively.

Inflation eases in Q1 2014

Annual inflation declined to 2.3% in March from 3.7% in February,

largely due to base effects. Housing costs have been unchanged

m/m since October 2013, bringing the annual housing inflation rate

down to 1.9% in last month, compared with 10.6% y/y in March

2013.

Average inflation in Q1 2014 eased to 3.1% from 3.8% in Q4 2014

and was broadly unchanged from Q1 2013. Housing inflation

slowed in the first quarter, as did furnishing & household

equipment, but food inflation accelerated. At this stage, we retain

our forecast for average inflation at 3.5% this year, up from 3.3% in

2013.

GDP Growth


Current account surplus


Inflation


4.3

1.8

3.5

5.5

4.3

3.7

0

1

2

3

4

5

6

2010 2011 2012 2013 2014f 2015f

% y

/y

3.0

11.1

7.3 7.8

6.0

5.0

0

2

4

6

8

10

12

2010 2011 2012 2013 2014f 2015f

% G

DP

-24

-20

-16

-12

-8

-4

0

4

8

12

16


% y

/y

Headline Housing Food

Egypt

Presidential elections set for late May will be an important

milestone in Egypt’s transition, with Field Marshall Abdel Fattah el-

Sisi widely expected to win. Although there will still be some event

risk associated with parliamentary elections that will be held in the

latter part of the year, the presidential vote should nevertheless

help provide greater clarity on the policy outlook.

Already there is talk of reforms to the domestic energy subsidy

system being introduced as early as July (the start of the fiscal

year FY2014/15), while a new investment law has been drafted

that would prevent third party challenges to contracts signed

between the government and investors. These are positive

developments for Egypt’s near-term economic outlook, and could

help set the stage for a more lasting revival in investor confidence.

Optimism meets reality

Unfortunately, the sharp gains seen in financial markets (the

EGX30 is up over 20% since the start of the year) and consumer

sentiment have not yet translated into an improvement in the real

economy. Indeed, GDP expanded only 1.4% y/y between October-

December, while more high-frequency manufacturing data through

the first three months of 2014 is also far from inspiring.

Sectors such as construction and real estate are likely to

outperform on the back of a renewed push to meet Egypt’s

massive housing deficit, with a new mortgage financing scheme

from the central bank and plans by UAE developer Arabtec to build

1mn new homes likely to buoy the industry. In contrast, the tourism

sector is likely to be hit further by the recent decision by European

tour operators to suspend trips to resort destinations along the Red

Sea due to security concerns. Tourist arrivals dropped (from an

already low base) over 30% y/y in March, while RevPAR came in

at only USD28 in the same month – the lowest in the entire MENA

region.

EGP to remain stable…for now

Although pressures on the Egyptian pound are still to the

downside, we do not believe a devaluation this quarter is likely,

with our base case seeing the central bank continuing to defend

the unit at EGP7.0000/USD. That said, our conviction begins to

wane beyond a three-month time horizon. Looking ahead, any

change to the central bank’s exchange rate policy will only take

place if inflation heads back into the low single-digits. With core

CPI standing at 9.9% as of May, a devaluation would appear

unlikely in the near term.

GDP

Source: Haver Analytics Emirates NBD Research

Exchange Rate


Credit Growth


-3

-2

-1

0

1

2

3

4

5

6

7

8

Q307 Q308 Q309 Q310 Q311 Q312 Q313

% y

/y

0

2

4

6

8

10

12

14

16

6

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

27-Feb-13 27-May-13 27-Aug-13 27-Nov-13 27-Feb-14

Black MarketOfficial% Premium (rhs)

-5

0

5

10

15

20

25

30

35

40

45

50

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13

Private Sector

Public Sector

% y

/y

Iraq

An increasingly important player

Since the start of 2014 Iraq has reinforced its status as one of the

most important OPEC oil producers, with the International Energy

Agency estimating hydrocarbon output hit a 35-year high of 3.6mn

b/d in March. Although Iranian oil production has increased 165k

since January, new Iraqi output has been almost twice as much at

300k during the same time period, with total production in the latter

now almost 500k higher. According to the government, output

could hit 4mn b/d by the end of the year, and 4.7bn in 2015. Even

if these ambitious targets are not met, it is clear Iraqi production

will be an increasingly important factor in global energy markets

over the coming years.

Aside from the security situation, the other key factor likely to

determine whether these production targets are achieved is the

ability of the governments in Baghdad and Erbil to finally reach an

oil revenue sharing agreement. Discussions have been in the

works for many years, however there are tentative signs that the

two sides are closer than ever to reaching a compromise. In early

April, Iraqi Oil Minister Abdul Kareem Luaibi said a deal could be

reached ‘within days’, while it has been reported that Kurdistan has

started exporting up to 100k b/d of oil through the national Iraqi

pipeline network as a gesture of goodwill. Should an agreement be

reached, medium-term output projections would likely be revised

upwards, as the lack of a deal has hindered foreign investment

inflows into the country’s hydrocarbon sector for the past decade.

Economy will be a regional outperformer

On the back of this increased output, the broader Iraqi economy

will remain a clear outperformer across the MENA region this year,

and likely for several years thereafter. Although the industry only

employs approximately 1% of the population, it accounts for

roughly 50-60% of the economy, while government employment

and public capital expenditure – both of which rely on oil revenues

- play an even larger role in driving non-oil growth. Our base case

currently sees real GDP growth of 8.7% in 2014, up from an

estimated 3.3% in 2013.

Security risks spike ahead of elections

Parliamentary elections are scheduled to take place on April 30, in

which Nouri al-Maliki is seeking a third consecutive term. Maliki’s

State of Law alliance is reported to be the front-runner heading into

the vote, although we would expect the process of coalition

building to take several weeks. If past elections are any indication,

the vote is also likely to correspond with a spike in security risks.

Oil Production


Money Supply


Inflation


1000

1500

2000

2500

3000

3500

Apr-05 Aug-06 Dec-07 Apr-09 Aug-10 Dec-11 Apr-13

thsd b

/d

0

10

20

30

40

50

60

70

Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13

M1

M2

% y

/y

-1

0

1

2

3

4

5

6

7

8

9

10


% y

/y

Jordan

The recent performance of the Jordanian economy can be

described as steady, yet uninspiring. In 2013, real GDP expanded

2.8%, which is only marginally higher than growth of 2.7% and

2.6% posted in 2012 and 2011 respectively. Since the start of

2011, quarterly growth rates have remained within an extremely

tight range between 2.2-3.0%, with real GDP expanding 2.8% in

Q4 2013.

Housing demand remains strong

Three of the largest sectors of the economy – including

manufacturing, trade, and transport, storage and communications

– also posted relatively anemic rates of growth in the last three

months of the year. The clear outperformer has been the

construction sector, which grew 8.7% in 2013. We believe this

industry’s strong performance is a result of the ongoing inflow of

Syrian refugees (approximately 600k by mid-April) that has

increased demand for housing across the country.

Government spending is also a key driver of economic activity,

having expanded 5.4% in Q4. Yet with public finances remaining

stretched and total government debt approaching 90%, there is

limited room to aggressively increase spending. The budget deficit,

excluding grants, has improved in recent years, but remains

elevated at 9.3% of GDP. With energy imports from Egypt and Iraq

coming to a halt due to security risks in both countries, substantial

progress on restoring the financial health of Jordan’s state energy

company NEPCO could be delayed further, which will prevent a

more fundamental narrowing in the fiscal shortfall in 2014.

Policy anchor in place

Despite these shortcomings, the IMF has appeared broadly

satisfied with Jordan’s performance under its 36-month Stand-By

Arrangement. In early March, the Fund announced it had reached

a staff-level agreement on the third and fourth reviews of the SBA,

which would allow for the release of an additional USD264mn by

late April. Such financial assistance – including bilateral aid and

bond guarantees from the US – has been crucial to restoring

stability to Jordan’s external accounts. In 2013, the goods trade

deficit widened by USD925mn to a record USD11.4bn, however

this was offset by a USD2.3bn surge in the current transfers

surplus.

One of the more encouraging developments has been the ongoing

de-dollarization throughout the domestic banking system, with FX

deposits having dropped in m/m terms for 11 consecutive months

as of February. Should this trend continue and inflationary

pressures remain muted (core CPI stood at 3.1% y/y in March), the

Central Bank of Jordan could have scope to cut interest rates by a

further 25-50bps by the end of the year.

GDP


Credit Growth


FX Deposits

Source: Haver Analytics, Emirates NBD Research.

-8

-6

-4

-2

0

2

4

6

8

10

12

Q209 Q210 Q211 Q212 Q213

GDP

Manufacturing

Trade

T,S,C

% y

/y

-20

-10

0

10

20

30

40

50

60

70


Public SectorPrivate Sector

% y

/y

-10

-8

-6

-4

-2

0

2

4

6

8

10

Jan-08 Dec-08 Nov-09 Oct-10 Sep-11 Aug-12 Jul-13

% m

/m

Kuwait

Oil output stable in Q1 2014

Kuwait’s oil production has been broadly stable in the first quarter,

averaging just over 2.9mn bpd, about 1% lower than average 2013

output. Our GDP growth forecast for 2014 is unchanged at 3.0%,

based on an assumption of 2.5% growth in the hydrocarbon sector

and non-oil growth of 3.6%. The IMF also kept its 2014 growth

forecast for Kuwait unchanged at 2.6%, rising to 3.0% in 2015.

Budget surplus set to narrow

The 2013/ 14 fiscal year ended on 31 March, and data to February

suggests that the government is likely to undershoot its budget, but

by a smaller margin than FY2012/13. April-February 2014 revenue

was 1.5% lower than the same period in the previous fiscal year,

while expenditure was 6.7% higher. March is typically a high

expenditure month, and we expect total spending to reach KWD

20.0bn for the full fiscal year 2014, around 5% lower than budget

but higher than KWD 19.3bn spent in 2013. Consequently, we

expect the budget surplus to narrow slightly to KWD 12.2bn

(23.3% of GDP) in 2013/14 from KWD 12.7bn (23.9% of GDP) in

2012/13.

The budget that has been approved for this year (2014/15)

projects spending of KWD 21.7bn, which would result in a further

narrowing of the budget surplus to KWD 10.6bn (19.7% of GDP)

this year, based on our revenue assumptions.

Private sector credit growth has accelerated

Both money supply and private credit growth have eased over the

last few months. Private sector credit growth ended last year at

7.3% y/y, in line with our forecast but slowed to 6.7% y/y in

February. The main driver appears to have been slower growth in

real estate lending. Public sector borrowing continues to decline,

but at a slower pace.

M2 growth slowed to 6.7% y/y in February from 10.0% at the end

of 2013, as quasi-money growth slowed sharply in the first two

months of this year.

GDP Growth

Source: Haver Analytics, IMF, Emirates NBD Research

Budget and current account balance


Money and credit growth


2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4


mn b

bl/ d

ay

0

10

20

30

40

50

60

70

80

90

2011 2012f 2013f 2014f 2015f

% G

DP

Budget balance Current account balance

-35

-30

-25

-20

-15

-10

-5

0

5

10


% y

/y

Private sector

Government credit

Lebanon

One step forward

Lebanon saw a rare improvement in its political backdrop in Q1

with the formation of a unity government led by Prime Minister

Tammam Salam, and comprising both the March 8 and March 14

coalitions. Theoretically, this could help fill the policy vacuum that

has been in place for almost one year, and suggests that three

years of economic stagnation may have finally helped the

country’s competing factions reach a compromise. On the back of

this development, ratings agency Standard & Poor’s even revised

its outlook on Lebanese bonds (B-) to stable from negative.

In reality however, the formation of a unity government is more

important for its symbolic value, rather than for any possibility that

we will soon see a coherent policy agenda from Beirut, or the

passage of any major pieces of legislation. At the time of going to

press, Lebanon was holding presidential elections, with early

indications pointing to a potentially prolonged policy vacuum as

there was little consensus within parliament over who should

replace Michel Suleiman.

Growth backdrop still weak

Despite this progress on the political front, the macroeconomic

outlook remains as weak as it was at the start of 2014. The Syrian

crisis looks set to rumble on, and with it, the domestic tourism

sector will have little chance of recovering. The tourism minister

has previously stated the sector was in a crisis, which is certainly

reinforced by data showing hotel occupancy rates and revenue per

available room continuing to hit multi-year lows at the start of 2014.

Manufacturing, trade and investment data is also relatively weak,

and suggests the economy continues to expand in the low single-

digits (our forecast is for real GDP growth of 2.0% in 2014). The

latest purchasing managers’ index for March came in at only 46.2,

while the economic coincident indicator expanded 1.2% y/y

(3mmavg) in January, marking a 13-month low.

A sobering milestone

Reports in early April suggested the number of official registered

Syrian refugees in Lebanon has now exceeded one million,

representing almost 25% of the pre-crisis population, and the

highest per capita concentration of refugees in the world. We have

previously highlighted the impact this demographic influx is having

on the local economy and the country’s already stretched public

finances. In contrast to Tunisia and Egypt however, Lebanon has

not been a beneficiary of a massive influx in financial assistance,

with the regional appeal for USD1.7bn to help cope with the

population influx only 17% funded as of early April.

Syrian Refugees

Source: United Nations, Emirates NBD Research

Hotel Data

Source: STR Global, Emirates NBD Research

Purchasing Managers’ Index

Source: Markit, Emirates NBD Research

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14

0

10

20

30

40

50

60

70

80

0

50

100

150

200

250


RevPAR, USD (lhs)Occupancy, %

37

39

41

43

45

47

49

51

53

May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14

PMI

New Orders

Employment

Libya

A rare bright spot

Hopes are high that Q2 will see a strong rebound in Libyan oil

production, after the government in Tripoli and eastern rebels

came to an agreement in mid-April that will see the reopening of

two oil ports that have been closed since July 2013. Rebels based

out of Benghazi had effectively brought oil production to a halt,

after they seized four of the country’s nine oil ports last year in an

effort to gain more concessions from the national government.

Although full details of the agreement remain unclear, reports

indicate that two smaller export terminals of Zueitina and Hariga

are set to open first, while the larger Ras Lanuf and Es Sider ports

will only reopen at a later date.

While we expect Libyan crude to re-enter global oil markets only

gradually, this is nevertheless one of the few positive

developments that have come out of the North African country in

several months. It also highlights a sharp turnaround from only one

month earlier, when risks of another full-blown civil war were rising

after the eastern rebels loaded crude oil onto an unauthorized

tanker – a crisis which led to the ousting of the prime minister.

Spending to be slashed

Since the start of 2014 output has averaged only 356k b/d,

compared to 1.2mn b/d in the same time period in 2013, and pre-

2011 levels of around 1.5mn b/d. The corresponding fall in export

receipts has resulted in a sharp deterioration in budget revenues,

with the state news agency recently reporting the eight-month port

closure had cost USD14bn. Despite sitting on a massive pile of FX

reserves (estimated at USD118bn), government officials had

warned the shutdowns were resulting in a budgetary crisis as

some departments were unable to cover their expenses.

The head of Libya’s budget committee recently proposed to cut

spending by a third (to LYD44bn), with funding for infrastructure

and other development projects to be halted. As government

spending remains the key driver of the non-oil economy, any

slowdown in public expenditure will undoubtedly result in lower

consumption and investment this year.

Security environment still tense

Aside from the slight progress being made in restarting

hydrocarbon production, there has been little improvement in

restoring security. In recent weeks, attacks by armed militias have

forced parliament to move its operations into a hotel, resulted in

European airline Lufthansa and Royal Jordanian Airlines

indefinitely halting flights to Tripoli, and pushed Prime Minister

Abdullah Theni to resign after only one month on the job.

Oil Production


Inflation

Source: CBL, Emirates NBD Research

FX Reserves


0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jan-06 Apr-07 Jul-08 Oct-09 Jan-11 Apr-12 Jul-13

mill

ion b

/d

-10

-5

0

5

10

15

20

25

30

35

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

% y

/y

-10

0

10

20

30

40

50

60

70

80

0

20

40

60

80

100

120

140

Jan-02 Oct-03 Jul-05 Apr-07 Jan-09 Oct-10 Jul-12

USDbn

% y/y (rhs)

Morocco

Preliminary estimates show the Moroccan economy slowing

sharply in the first three months of 2014, with the country’s

planning agency reporting real GDP expanded 2.5% in Q1, down

from 4.5% in Q413 and 3.8% in Q113. The slowdown in headline

growth was not completely unexpected, and is due in large part to

high base effects from last year’s record harvest. The agricultural

economy, which accounted for 16% of GDP last year according to

our estimates, contracted 3.4% in Q1, compared to growth of

17.7% in the same time period last year, and an estimated 19.7%

in all of 2013.

Headline growth masks divergence

The non-agricultural economy in contrast grew 3.5% in Q114,

which was the fastest pace of expansion in five quarters. Looking

ahead, this is a trend we expect to continue through the remainder

of the year, with the non-agricultural economy set to vastly

outperform the agricultural sector. If estimates by Morocco’s

planning agency prove correct, which see cereals production

dropping by over 25% y/y in 2014, headline GDP growth this year

is likely to be significantly below last year’s estimated 4.2%. As a

result, we have revised down our forecast to 2.4% for 2014.

Reform agenda derailed?

With economic growth slowing, it remains unclear if the

government will be able to make substantial progress on its reform

agenda. Protests have already broken out against pension reforms

and plans to freeze public sector hiring. Although the USD6.2bn

IMF program continues to anchor policy, willingness to push ahead

with reforms may wane in the face of rising unemployment this

year.

Looking to the Gulf

Similar to Egypt, Morocco also looks set to be a key beneficiary of

a reorientation towards the GCC over the coming years. In early

March it was announced Qatar had provided USD500mn in aid to

the North African kingdom, which was the first installment of the

USD1.25bn GCC financial package announced back in 2011.

In addition, in April it was announced that a joint venture created

by Qatar, Saudi Arabia, the UAE and Kuwait – known as Wessal

Capital – would invest USD737mn in tourism infrastructure in the

port of Casablanca. Investment inflows from the GCC are likely to

form an increasingly important source of capital for Morocco over

the coming years, which should reinforce the progress that has

already been made in reducing the current account deficit (7.7% of

GDP in 2013 from 9.7% in 2012).

GDP


Credit Growth


Current Account


0

1

2

3

4

5

6

7

8

9

10

Q107 Q108 Q109 Q110 Q111 Q112 Q113

% y

/y

0

5

10

15

20

25

30

35

Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Jan-13

% y

/y

-25000

-20000

-15000

-10000

-5000

0

5000

10000

15000

20000

2005 2007 2009 2011 2013

Transfers Income Services Goods

US

Dm

n

Oman

Oil production rises in Q1 2014

Oman’s oil output increased 2.0% in the first quarter, averaging

980,000 bpd compared with average 2013 output. Although we

expect the hydrocarbon sector to contribute to overall GDP growth

this year, we expect the pace of expansion in the sector to be

lower than last year (we estimate 4% growth in the oil sector in

2013). Consequently, we expect real GDP growth to slow to 4.0%

this year from an estimated 4.7% in 2013. Our growth forecast is

more optimistic than the IMF’s 3.4% in 2014 and 2015.

Money supply growth surges in Q1 2014

Oman’s broad money supply growth (M2) has accelerated sharply

since December, reaching 14.3% y/y in February from a 2013 low

of 4.6% y/y in November. The main driver appears to have been

OMR demand deposits, which jumped 18% since November. FX

deposits have also risen sharply over the last three months but are

a relatively small component of M2.

Private sector credit growth has ranged between 6% and 10% for

the last twelve months, and ticked up in February as money supply

growth accelerated. Public sector borrowing, which had slowed to

just 1.5% y/y in December 2013, has also recovered year-to-date

reaching 9.6% y/y in February. However, public sector borrowing

accounts for only 15% of total domestic credit, so private sector

activity will remain the key driver of overall loan growth. We expect

private sector credit growth to remain broadly within the 6-10%

range, ending this year at 8.0% y/y.

Inflation falls to multi-year low in February

Headline CPI fell to its lowest level since 2005 in February,

reaching 0.6% y/y. Oman revised its entire CPI time series last

year, and there is limited back-data on the components of the new

index. However, ‘transport’, ‘communication’, ‘recreation & culture’

and ‘miscellaneous goods & services’ are all showing annual price

declines in January and February 2014, while housing and food

(which account for a combined 50.4% of the index) are showing

very modest inflation of 1.4% y/y and 2.2% y/y respectively. At the

moment, our 2.5% forecast for average inflation this year appears

on the high side, but we await further data before considering a

revision to our estimates.

Oil Production

Source: EIG via Bloomberg, Emirates NBD Research

GDP growth


Inflation


840

860

880

900

920

940

960

980

1000

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

Th

. B

pd

0

2

4

6

8

10

12

14

16

18

20

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14

% y

/y

Broad Money (M2)

Private sector credit

Public sector credit

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


% y

/y

Qatar

6.5% GDP growth in 2013

Qatar’s economy expanded by 6.5% last year, higher than our

6.0% forecast. Non-oil sectors were again the main driver of

growth, with ‘finance, insurance, real estate and business services’

and ‘building and construction’expanding 14.3% and 13.6%

respectively. ‘Government services’ was also a key contributor to

growth, up 15.1% y/y in 2013, while growth in the hospitality sector

surged to 12.8% y/y from 6.7% in 2012.

IMF upgrades 2014 growth forecast to 5.9%

Looking ahead to the rest of this year and 2015, we expect these

sectors to remain the main drivers of growth as the authorities

implement the public investment program ahead of the 2022 FIFA

World Cup.

Indeed, the 2014/ 2015 budget makes provision for a substantial

17% increase in development spending on ‘key projects’,

compared to last year’s budget. While some of this will be spent

on general infrastructure and transport projects, construction will

also begin on seven new football stadiums specifically for the

World Cup, according to the government’s statement.

Given the reported delays in execution of infrastructure spend so

far, we think there is a risk of under-spending on the capex front.

Nevertheless, we have revised our 2014 forecast for real growth

up to 6.3% from 5.2% previously, rising to 6.9% in 2015. The IMF

is slightly more conservative than us, with a revised 5.9% forecast

for this year, up from 5.0% previously. The Fund has also

upgraded its 2015 growth forecast to 7.1% from 6.6% previously.

Inflation eases in Q1 2014

Despite robust economic growth, annual inflation was lower in the

first quarter of 2014, compared with the same period last year. CPI

averaged 2.6% in Q1 2014 compared with 2.7% in Q4 2013 and

3.3% in Q1 2013. To some extent however, the moderation in

inflation is due to high base effects as inflation accelerated quite

sharply last year. Overall, we expect strengthening domestic

demand to drive inflation higher this year, and we retain our 2014

forecast of 4.0% average inflation, up from 3.1% in 2013.

Credit growth accelerates year-to-date

Both public and private sector credit growth have accelerated in

the first two months of this year, with private sector credit growing

16.2% y/y in February (from 13.5% y/y in December) and public

sector credit growth up to 18.1% y/y from 9.7% in December. We

expect public sector credit growth to remain strong as public

infrastructure projects get underway, and due to low base effects.

Real GDP growth


Inflation


Credit growth


16.7

13.0

6.2 6.5 6.3 6.9

0

3

6

9

12

15

18

2010 2011 2012 2013e 2014f 2015f

% y

/y

-8

-6

-4

-2

0

2

4

6

8


% y

/y

Headline CPI

Food

Housing

0

5

10

15

20

25

0

20

40

60

80

100

120


% y

/y

Public sector (lhs)

Private sector (rhs)

Saudi Arabia

Oil production broadly stable in Q1 2014

Oil output in the Kingdom averaged 9.7mn bpd in the first quarter,

broadly unchanged from Q4 2013 but nearly 2% higher than

average 2013 output. Our outlook for growth in 2014 assumes

stable oil production for the year as a whole, and we remain

comfortable with this assumption at this stage.

PMI data indicates slower non-oil growth in Q1

Official data confirmed that non-oil GDP grew 5.0% in 2013, down

from 5.8% in 2012 and 8.0% in 2011. The purchasing managers’

index (PMI) indicate that growth in the non-oil sector has remained

robust in the first quarter of this year, although the pace of

expansion has slowed in February and March. Indeed the March

reading was at a five-year low of 57.0. Significantly, employment

in the non-oil private sector, as measured by the PMI, declined in

March - the first decline in two-and-a-half years.

In its latest World Economic Output report, the IMF downgraded its

forecast for real GDP growth in 2014 to 4.1% from 4.4%

previously, bringing the Fund’s estimate closer to our 4.2%

forecast for Saudi Arabia this year.

Inflation surprises on the downside

Inflation in the first quarter of 2014 was lower than we had

anticipated, declining to 2.6% y/y in March from 3.0% y/y in

December. Average inflation for the quarter was 2.8% y/y,

compared with 3.0% in Q4 2013 and 3.9% in Q1 2013. While base

effects account for part of the easing in inflation year-to-date, lower

food, transport and communications prices in Q1 2014 have also

contributed.

However, firms in Saudi Arabia are reporting higher costs of

production and the PMI data shows that input prices are still rising

faster than output prices. At this stage, it seems that market

competition is eroding pricing power and keeping consumer

inflation in check. However, we expect higher production costs to

feed through to CPI during the course of the year.

Credit growth steady year-to-date

Both public and private sector credit growth rates have been

steady at 3% m/m and 1% m/m in Jan-Feb this year. However,

annual growth in public sector borrowing declined sharply in

February due to a high base (public sector credit jumped 12.2%

m/m in February 2013).

Private sector credit growth has been steady around the 12% y/y

mark over the last three months. However, the recent issuance of

real estate financing licenses by SAMA, allowing major banks to

grow mortgage loans, is likely to support private sector credit

growth in the coming months.

Oil production


Inflation


Credit Growth


8.4

8.9

9.4

9.9

10.4

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

mn b

pd

0

1

2

3

4

5

6

7

8


Headline CPI

Food

Housing

-15

-10

-5

0

5

10

15

20

25

30


Private sector Public sector

Tunisia

Aid pledges surge

The outlook for the Tunisian economy has improved in recent

months, despite data continuing to show growth remaining tepid in

Q1. Since the start of the year, there have been multiple pledges

of loans and grants from regional and global development banks,

which are being extended as a show of support for the country’s

political transition and economic recovery.

Some of the more notable pledges have come from the African

Development Bank (USD2.1bn for 2014/15), European Investment

Bank (USD690mn, including USD200mn to develop a gas field),

and World Bank (USD1.2bn, including USD750mn to support

government reforms and USD300mn for capacity building). In

addition, bilateral aid has also been offered, with France extending

USD645mn and Japan providing a loan guarantee of USD250mn.

IMF underpinning confidence

Most importantly of all perhaps, Tunisia also continues to be

supported by a Stand-By Arrangement from the IMF. In late March,

the Fund said it had reached a staff-level agreement following the

third review of the country’s 24-month program, which would allow

for the disbursal of an additional USD225mn following approval by

the Executive Board in late April. Although Tunisia’s economic

backdrop is lackluster – real GDP expanded only 2.8% in 2013 –

and the current and fiscal account deficits remain large, the IMF

program is helping anchor investor confidence.

Progress on the political front has also been crucial in this regard,

as a new constitution was approved at the start of the year, and a

unity government is currently preparing the stage for parliamentary

elections which are likely to take place in Q4. We still have doubts

as to whether new elections will solve the fundamental problems at

the root of the political crisis. However, financial markets do not

appear overly concerned, with Tunisia’s EUR2020 bond recently

rallying to its highest level since 2010 (see accompanying chart).

With Prime Minister Mehdi Jomaa stating the country would need

USD8.2bn in external financing this year, the combination of

improved investor confidence and the aforementioned bilateral and

multilateral aid commitments should ensure Tunisia has little

difficulty raising the necessary capital.

Policy drift remains a risk

Despite this improved backdrop, there are reasons to remain

cautious on the economy’s growth prospects in the near term. With

elections slated for later this year, policy drift will continue, while

scope for aggressively loosening fiscal and monetary policy is

limited. We are forecasting growth of 3.1% in 2014, and a slightly

faster pace of expansion of 3.6% in 2015.

Balance of Payments


FX Reserves


EUR2020 Bond


-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

Q109 Q409 Q310 Q211 Q112 Q412 Q313

Financial Account

Current Account

US

Dm

n

-30

-20

-10

0

10

20

30

40

0

2

4

6

8

10

12

Jan-08 Dec-08 Nov-09 Oct-10 Sep-11 Aug-12 Jul-13

USDbn

% y/y (rhs)

89

91

93

95

97

99

101

103

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14

UAE

PMI data points to stronger growth in Q1 2014

The UAE’s Purchasing Managers’ Index (PMI) rose to 57.7 in

March, the highest reading since the time series began (August

2009), signaling strong growth in the non-oil private sector. The

detailed data paints a picture of strong domestic demand and new

order growth driving increased output.

The first quarter PMI data confirms our view that the non-oil sector

will be the main driver of growth in 2014, with the hydrocarbons

sector expected to remain broadly stable following several years of

strong expansion. This view is borne out by Bloomberg’s estimates

for oil production in Q1 2014, which show the UAE’s oil output

averaging 2.73mn bpd, just -1.1% lower than average 2013 output.

Inflation is still contained, but the trend is inexorably upwards

The PMI data also suggests that the non-oil sectors of the

economy may be reaching capacity constraints, with the backlogs

of work growing at a faster pace through Q1 2014. Employment,

staff costs and other input prices have also continued to rise.

Nevertheless, it seems that firms are reluctant to pass on the full

extent of higher production costs to consumers, with output prices

rising only marginally in February and March.

Consequently, headline inflation in the UAE remains relatively low,

at 1.9% y/y in March, up from 1.5% in December 2013. The main

driver of the official CPI is housing, although the full extent of the

increase in rents and residential real estate prices over the last two

years is not yet reflected in the official indices; housing inflation at

the national level was just 2.4% y/y in March. Lower food prices

over the last four months have also offset inflation in some of the

other components of the index.

We expect to see inflation continue to rise during the course of this

year as higher housing costs feed through to the official index, and

as firms enjoy increased pricing power and are able to pass-on

their higher production costs to consumers. We retain our average

2014 inflation forecast of 3.0% (up from 1.1% in 2013), although

we note that the y/y rate is likely to reach 4-4.5% by December

2014.

Liquidity conditions improve

Broad money supply growth has accelerated sharply since Q4

2013, reaching a five-year high of 22.5% y/y in December, before

easing to 21.0% y/y in January (latest available data). Liquidity

conditions have likely continued to improve through the rest of Q1

2014, as interbank rates have eased further. Since 25 March, 3m

EIBOR has declined by -7bp (to 0.74 as of this writing), and the

spread against 3m LIBOR has tightened by more than 6bp. As the

bias to US rates is higher however, we see little scope for

significant easing in 3M EIBOR over a 3-6month horizon.

Oil Production


Inflation


Interbank Rates


2.4

2.6

2.8

3.0

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

mn b

pd

-6

-4

-2

0

2

4

6

8

10


% y

/y

Headline CPI

Food

Housing

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14

3m EIBOR

3m LIBOR

UAE - Dubai

Data points to sustained growth in Q1 2014

Tourism and hospitality data for the first quarter show that hotels

continued to enjoy high occupancy rates and pricing power, even

as supply of hotel rooms increased. Hotel occupancy in Dubai

averaged 88.0% in Q1 2014, broadly in line with the same period

last year. Revenue per available room (RevPAR) rose 6.7% y/y in

Q1 2014, even as the supply of hotel rooms also increased 6.7%

y/y. Growth in airport passenger numbers has also been relatively

stable at 13.5% y/y in Jan-Feb, similar to the same period last

year.

Residential real estate prices have been relatively stable in the first

quarter of this year, particularly in the villa segment of the market.

New mortgage lending rules requiring a substantial 25% deposit

for expatriate borrowers, as well as higher transaction taxes that

came into effect in Q4 2013 have likely helped to cool this segment

of the market. Apartment prices have continued to rise in Q1 2014,

although at a more modest pace than Q4 2013.

In contrast, the commercial real estate sector, which has lagged

the recovery in house prices, saw strong growth in the first quarter,

with prime commercial property prices rising 18.9% y/y and

secondary commercial property up 16.7% y/y.

Inflation rises to 3.0% at the end of Q1 2014

Consumer inflation in Dubai rose to 3.0% y/y in March from 2.2%

y/y in December 2013. We had expected the sharp increase in

housing costs in the emirate over the last 18-24 months to push up

headline inflation over the course of this year, so the data is

unsurprising. The data also shows higher prices for ‘furniture and

household equipment’, ‘restaurants and hotels’ and ‘health care’.

The rise in services costs signals increased demand pressures

that may be reflecting population growth as well as increased per

capita consumption.

Financial markets reflect improving fundamentals

Markets have continued to reflect Dubai’s improving economic

fundamentals. On the equity side, the Dubai Financial Market

General Index (DFMGI) rose above 5000 points for the first time

since 2008, and is the best performing equity index in the world

year-to-date (in USD terms).

Following the successful rollover of USD 20bn of debt held by the

UAE Central Bank and Abu Dhabi government in March, the

government of Dubai issued a USD 750mn 15 year sukuk in April,

yielding a profit rate of 5%. Dubai’s 5-year CDS spread fell to a

five-year low of 165bp in April, reflecting increased appetite for

Dubai exposure, as concerns about the emirate’s ability to service

its debt have receded for the time being.

Residential real estate price growth

Source: Cluttons via Bloomberg, Emirates NBD Research

Commercial real estate price growth

Source: Cluttons via Bloomberg, Emirates NBD Research

Dubai 5Y CDS


-40

-20

0

20

40

60

80


% y

/y

Mid range villas

Mid range apartments

Low end apartments

High end villas

-80

-60

-40

-20

0

20

40

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1

2009 2010 2011 2012 2013 2014

% y

/y

Prime commercial

Secondary commercial

0

100

200

300

400

500

600

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

bp

Key Economic Forecasts: Algeria

National Income 2011 2012 2013 2014f 2015f

Nominal GDP (DZD bn) 14481 16052 17576 19616 21914

Nominal GDP (USD bn) 199 207 220 255 285

Population (mn) 37.8 38.5 39.2 39.9 40.6

GDP per capita (USD) 5263 5375 5603 6380 7004

Real GDP Growth (% y/y) 2.6 2.6 2.9 2.5 2.6

Monetary Indicators (% y/y)

CPI (average) 5.7 9.7 9.0 9.0 9.0

External Accounts (USD bn)

Exports 76.6 75.7 68.4 71.8 75.4

Imports 59.5 62.7 65.7 69.0 72.4

Trade balance 17.2 13.0 2.7 2.9 3.0

% GDP 8.6 6.3 1.2 1.1 1.1

Current account balance 17.8 12.3 0.9 1.1 1.4

% GDP 8.9 5.9 0.4 0.4 0.5

Reserves 182.8 191.3 194.7 210.3 231.3

Fiscal Indicators (DZD bn)

Revenue 5790.0 6061.5 6070.6 5996.0 6367.7

Expenditure 5853.0 6730.9 6932.8 6932.8 7210.1

Balance -63.0 -669.4 -862.2 -936.8 -842.4

% GDP -0.4 -4.2 -5.4 -5.8 -5.2


Key Economic Forecasts: Bahrain


Nominal GDP (BHD bn) 11.0 11.4 12.3 13.1 13.9

Nominal GDP (USD bn) 29.2 30.4 32.8 34.9 37.0




M2 5.2 4.4 7.5 7.8 7.2

Private sector credit 15.0 6.2 6.6 8.0 8.5

CPI (average) -0.4 2.8 3.3 3.5 3.5


Exports 19.7 19.8 20.9 20.4 20.4

Of which: hydrocarbons 15.5 15.2 15.3 14.4 14.2

Imports 12.1 13.2 13.7 13.5 13.7

Trade balance 7.5 6.5 7.3 6.8 6.8

% GDP 25.9 21.5 22.2 19.6 18.2


% GDP 11.1 7.3 7.8 6.0 5.0

Fiscal Indicators (% GDP)

Budget balance -0.3 -2.0 -3.4 -5.0 -7.6

Revenue 25.7 26.6 26.0 23.2 19.8

Expenditure 26.0 28.6 29.4 28.2 27.4


Key Economic Forecasts: Egypt


Nominal GDP (EGP bn) 1371.1 1575.5 1753.3 1964.2 2220.0





M2 10.0 8.4 17.0 12.0 10.0

CPI (average) 10.1 7.2 10.0 11.0 10.0


Exports 27.0 25.1 26.0 27.1 28.1

Imports 54.1 59.2 57.5 56.7 56.9

Trade Balance -27.1 -34.1 -31.5 -29.6 -28.8

% of GDP -16.7 -21.0 -19.4 -18.2 -17.7

Current Account Balance -6.1 -10.1 -5.6 -2.1 -1.0

% of GDP -3.7 -6.2 -3.4 -1.3 -0.6

Reserves 26.6 15.5 14.9 16.4 19.4

Public Finances

Revenue (EGP bn) 265286 303622 350322 385095 427182

Expenditure (EGP bn) 401866 470992 588188 578958 609551

Balance* -134460 -166705 -239720 -193363 -181869

% of GDP -11.14 -12.16 -13.67 -11.10 -10.44

Central Government Debt (EGP bn) 808113 990529 1261141 1450312 1450312

% of GDP 58.9 62.9 71.9 75.8 76.8


Note: * denotes fiscal year (FY2012/13 refers to July 2012-June 2013)

Key Economic Forecasts: Iraq


Nominal GDP (IQD tn) 184 223 235 264 406


Population (mn) 32.7 33.7 34.8 35.9 37.0




CPI (average) 5.6 2.1 5.0 7.0 7.0


Exports 79.7 83.7 87.0 97.5 121.8

Imports 40.6 43.9 50.5 55.5 61.1

Trade balance 39.0 39.8 36.5 41.9 60.8

% GDP 24.8 20.7 18.1 18.5 17.5


% GDP 16.7 13.4 10.5 11.0 11.9

Reserves 61.1 70.3 80.1 92.1 101.3

Fiscal Indicators (IQD tn)

Revenue 104.6 119.4 131.3 148.4 178.0

Expenditure 94.3 109.4 124.1 136.5 153.5

Balance 10.3 10.0 7.2 11.8 24.5

% GDP 5.6 4.5 3.1 4.5 6.0


Key Economic Forecasts: Jordan


Nominal GDP (JOD bn) 18.0 19.3 20.9 22.5 24.8





M2 11.0 -0.8 5.0 6.0 8.0

CPI (average) 4.4 4.8 5.5 4.1 6.2


Exports 8.0 7.9 7.9 8.7 9.4

Imports 16.8 18.4 19.4 20.0 20.8

Trade Balance -8.8 -10.5 -11.5 -11.3 -11.4

% of GDP -34.8 -38.8 -38.8 -35.5 -32.5


% of GDP -11.7 -17.3 -11.4 -9.0 -6.2

Reserves 12.1 8.8 9.7 10.7 11.5

Public Finances

Revenue (JOD bn) 5.4 5.1 5.7 6.3 7.1

Expenditure (JOD bn) 6.8 6.9 7.0 7.7 8.4

Balance -1.4 -1.8 -1.3 -1.3 -1.3

% of GDP -7.7 -9.5 -6.2 -5.9 -5.4

Central Government Debt (JOD bn) 14.1 16.8 20.1 23.2 23.2

% of GDP 78.3 87.2 85.8 99.3 96.1


Key Economic Forecasts: Kuwait


Nominal GDP (KWD bn) 46.0 53.0 52.4 53.7 56.2




Hydrocarbon 15.4 11.6 5.0 2.5 2.0

Non-hydrocarbon 4.6 3.8 2.0 3.6 4.3


M3 8.2 7.8 10.1 7.1 8.3


CPI (average) 4.9 3.2 3.0 3.5 4.0


Exports 102.8 119.2 120.2 116.8 117.7


Imports 22.0 22.4 24.0 25.9 28.0

Trade balance 80.7 96.7 96.2 90.9 89.7

% GDP 48.5 51.1 52.1 48.6 46.2


% GDP 40.3 41.8 41.9 40.5 38.8


Budget balance 28.8 23.9 23.3 19.7 16.6

Revenue 65.7 60.3 61.5 60.1 59.3

Expenditure 37.0 36.4 38.2 40.4 42.7


Key Economic Forecasts: Lebanon


Nominal GDP (LBP bn) 60442 64054 69964 76573 83526





M2 -1.4 10.9 5.0 8.0 9.0

CPI (average) 5.0 6.6 2.0 4.0 6.0


Exports 5.4 5.6 5.9 6.4 7.3

Imports 19.4 20.3 21.8 23.7 25.9

Trade Balance -13.9 -14.7 -15.9 -17.3 -18.6

% of GDP -34.7 -34.5 -34.2 -33.8 -33.1


% of GDP -10.9 -8.3 -7.9 -8.1 -7.8

Reserves 30.8 30.0 31.8 34.9 38.4

Public Finances

Revenue (LBP bn) 14.1 14.2 14.2 14.1 14.0

Expenditure (LBP bn) 17.6 20.1 19.9 19.9 20.1

Balance -3.5 -5.9 -5.7 -5.8 -6.1

% of GDP -5.8 -9.2 -9.1 -8.8 -8.6

Central Government Debt (LBP bn) 80.9 87.0 98.3 114.0 120.0

% of GDP 133.8 135.8 140.5 148.9 143.7


Key Economic Forecasts: Libya


Nominal GDP (LYD bn) 50 121 118 151 175


Population (mn) 6.1 6.2 6.2 6.3 6.3


Real GDP Growth (% y/y) -61.3 104.5 -29.0 26.5 12.0


CPI (average) 15.8 6.9 7.5 8.5 9.5


Exports 19.1 62.2 49.8 57.2 61.8

Imports 11.2 25.7 26.5 27.8 32.0

Trade balance 7.9 36.5 23.3 29.4 29.8

% GDP 19.4 37.9 24.7 24.5 21.4


% GDP 7.9 30.6 17.2 18.6 16.3

Reserves 105.0 118.4 119.6 125.6 131.8

Fiscal Indicators (LYD bn)

Revenue 21.3 74.7 60.0 10.6 117.4

Expenditure 27.8 53.1 67.4 86.5 111.6

Balance -6.5 21.5 -7.3 19.9 5.7

% GDP -13.2 17.8 -6.2 13.3 3.3

Source: Haver Analytic, Emirates NBD Research

Key Economic Forecasts: Morocco


Nominal GDP (MAD bn) 802.6 828.2 878.0 934.6 1032.3





M2 7.2 4.9 4.5 5.5 6.5

CPI (average) 0.9 1.3 1.8 4.0 5.0


Exports 21.6 21.4 21.4 22.7 24.3

Imports 40.9 41.5 42.3 43.6 45.3

Trade Balance -19.3 -20.1 -20.9 -20.9 -21.0

% of GDP -19.4 -20.9 -20.5 -19.3 -17.6


% of GDP -8.0 -9.7 -7.7 -7.2 -5.9

Reserves 20.9 17.4 18.6 20.0 22.0

Public Finances

Revenue (MAD bn) 191.9 201.6 199.4 205.8 221.5

Expenditure (MAD bn) 185.7 216.8 217.3 225.2 235.4

Balance* -40.5 -56.5 -52.5 -51.7 -46.9

% of GDP -5.0 -6.8 -6.0 -5.5 -4.5

Central Government Debt (MAD bn) 430.9 493.7 543.0 570.2 604.4

% of GDP 53.7 59.6 61.8 61.0 58.5


Note: * includes balance of treasury accounts and minus investments

Key Economic Forecasts: Oman


Nominal GDP (OMR bn) 26.7 29.8 32.1 33.6 35.3





M2 12.2 10.7 8.5 7.0 6.5


CPI (average) 4.0 2.9 2.1 2.5 3.0


Exports 47.2 52.2 55.3 56.0 56.7


Imports 21.5 25.7 28.2 31.1 32.6

Trade balance 25.6 26.5 27.1 25.0 24.1

% GDP 36.9 34.3 32.5 28.6 26.3


% GDP 12.9 10.5 9.3 5.4 3.6


Budget balance -0.6 -0.4 1.2 -1.6 -1.0

Revenue 39.5 45.1 43.9 38.6 37.3

Expenditure 40.2 45.5 42.6 40.2 38.3


Key Economic Forecasts: Qatar


Nominal GDP (QAR bn) 624.2 691.4 736.9 787.7 850.7




Hydrocarbon 15.7 1.2 0.1 0.0 0.0

Non- hydrocarbon 10.1 10.9 11.8 10.0 10.5


M2 17.1 22.9 19.6 16.0 17.0


CPI (average) 1.9 1.9 3.1 4.0 4.5


Exports 114.4 133.0 139.0 132.1 126.3


Imports 26.9 30.8 32.7 35.2 38.0

Trade balance 87.5 102.2 106.3 96.9 88.3

% GDP 51.0 53.8 52.5 44.8 37.8


% GDP 30.3 32.4 29.2 23.5 18.5

Total external debt 126.4 150.5 156.4

% GDP 73.7 79.2 77.3


Budget balance 7.7 11.9 5.9 5.0 5.5

Revenue 35.7 40.5 34.6 32.7 33.2

Expenditure 27.9 28.5 28.7 27.7 27.8


Key Economic Forecasts: Saudi Arabia


Nominal GDP (SAR bn) 2510.7 2752.3 2794.8 2853.5 2974.6




Hydrocarbon 11.0 5.7 -0.6 0.0 1.0

Non- hydrocarbon 8.0 5.8 5.0 5.4 5.2


M2 13.3 13.9 10.9 10.0 10.0


CPI (average) 4.0 2.9 3.5 4.0 4.2


Exports 364.6 388.2 380.1 370.9 370.6


Imports 120.0 141.8 156.0 166.9 183.6

Trade balance 244.6 246.4 224.1 204.0 187.0

% GDP 36.5 33.6 30.1 26.8 23.6


% GDP 23.5 22.3 17.9 14.7 11.5

SAMA's Net foreign Assets 535.2 647.6


Budget balance 11.6 13.6 7.4 4.6 3.4

Revenue 44.5 45.3 40.5 38.0 36.4

Expenditure 32.9 31.7 33.1 33.4 33.0

Public debt 5.4 3.6 2.7


Key Economic Forecasts: Tunisia


Nominal GDP (TND bn) 64.7 70.6 75.6 82.6 90.6



Real GDP Growth (% y/y) -0.2 4.2 3.1 3.4 3.6


M2 9.3 8.2 5.0 8.0 10.0

CPI (average) 3.5 5.6 6.2 6.0 5.8


Exports 17.8 17.0 17.0 18.0 19.4

Imports 22.6 23.1 23.0 24.2 25.7

Trade Balance -4.8 -6.1 -5.9 -6.3 -6.3

% of GDP -10.4 -13.5 -12.8 -12.3 -11.2


% of GDP -7.4 -8.2 -8.5 -8.3 -7.1

Reserves 7.6 8.6 7.5 7.6 8.1

Public Finances

Revenue (TND bn) 16.8 18.5 20.0 21.2 22.2

Expenditure (TND bn) 18.3 20.4 23.5 24.6 25.6

Balance* -1.6 -1.9 -3.5 -3.5 -3.4

% of GDP -3.5 -5.5 -6.3 -5.8 -5.2

Central Government Debt (TND bn) 28.8 32.9 36.2 39.8 43.8

% of GDP 44.4 44.3 45.7 52.6 57.9


Note: * does not include privatizations fees and grants

Key Economic Forecasts: UAE

National Income 2011 2012 2013f 2014f 2015f

Nominal GDP (AED bn) 1280.2 1409.5 1418.4 1488.6 1578.2



Real GDP Growth* (% y/y) 3.9 4.4 4.6 4.5 4.5

Abu Dhabi* 9.3 5.6

Dubai* 3.0 4.4 4.5 4.7 4.5


M2 5.0 4.4 22.5 7.5 8.0


CPI (average) 0.9 0.7 1.1 3.0 3.5


Exports 299.2 347.0 369.0 391.5 420.9


Imports 196.3 222.8 246.8 270.0 299.3

Trade balance 102.9 124.2 122.2 121.5 121.6

% GDP 29.5 32.3 31.6 30.0 28.3


% GDP 13.8 16.5 15.0 13.3 11.7


Consolidated budget balance 4.1 8.6 8.6 6.8 6.2

Revenue 34.3 35.1 34.9 32.6 31.8

Expenditure 30.3 26.5 26.3 25.9 25.6

* UAE real growth data are sourced from NBS to 2012, with Emirates NBD forecasts for 2013 and 2014. Dubai’s real growth data are sourced from Dubai

Statistics Centre. Abu Dhabi’s real growth data are sourced from Statistics Centre Abu Dhabi.

Source: Haver Analytics, IMF, National sources, Emirates NBD Research

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