The gradual stabilisation of the Egyptian economy is ongoing, driven by the restoration of foreign currency liquidity, even though the pace of reforms has been uneven. The rebound in activity, bolstered by household consumption, has exceeded expectations, despite a restrictive fiscal and monetary environment. The decrease in inflation appears to be sustained and should allow for continued monetary easing in the coming quarters. The outlook for foreign currency liquidity is positive, thanks in particular to substantial financing from bilateral and multilateral creditors. The public finance landscape is more complex: consolidation efforts are genuine, despite the slow pace of some reforms, yet the interest burden continues to be a significant source of vulnerability
The Moroccan economy continues to gain momentum. Largely unaffected by the tightening of US tariff policy, it has recorded solid GDP growth since the beginning of the year. Domestic demand is strong, driven by investment. Despite headwinds in the automotive sector, macroeconomic risks are contained, and the economic outlook is positive. However, current social pressures could have a negative impact on public finances, which have remained under control until now. Improved financing conditions should enable Morocco to cope with any deterioration.
Since the beginning of the year, the resumption of the trade war between the United States and China has led the latter to redirect its exports in record time. On average over April to July, while Chinese exports to the US contracted by 23% year-on-year (yoy) in value terms, those to Africa increased by 34%, far more than those to ASEAN countries (17%) and Europe (7%).
The volatility of oil prices reflects the uncertainties of the international environment. After falling in April following President Trump's announcement of "reciprocal" tariffs, oil prices rose by around ten dollars during the 12 days of conflict between Iran and Israel, before falling again since the ceasefire agreement.
The outlook remains positive despite international turmoil. The United Arab Emirates (UAE), which is relatively unaffected by the tightening of US trade policy, has room to manoeuvre to cope with lower oil prices and the slowdown in global trade. Its economy is more diversified than that of other Gulf countries. It is also driven by its strong attractiveness to foreign investment and the support of the government. In the longer term, the UAE could also benefit from a potential reconfiguration of trade flows and leverage its assets to maintain its strategic relationship with the United States.
The fall in global oil prices is one of the most dramatic effects of the uncertainty generated by the tightening of US trade policy. The price of Brent crude is now expected to average USD 65 in 2025-2026, compared with USD 80 in 2024, and the risks of a further fall are high. For the Gulf States, where hydrocarbons account for 60% of budget revenues and 70% of exports, the consequences will be manifold.
Economic growth is being restrained by OPEC+ restricting oil production. Excluding hydrocarbons, activity is holding up well however, driven by consumption and the government’s intensive investment policy under the Vision 2030 economic diversification programme. This solidity comes with large budget deficits, and now also current account deficits, which are requiring record-high debt issuance. Fortunately, the country still has comfortable financial leeway. However, Donald Trump's return to the White House could have a deep impact on a number of areas.
The massive support of international donors has restored a degree of optimism to the Egyptian economic outlook. The depreciation of the exchange rate is under control and inflation is clearly on a downward trajectory, which should make it possible to ease monetary policy. Nevertheless, structural problems remain and will only be resolved very gradually, both in terms of public finances and external accounts. The policies of the new US administration should have a limited impact on Egypt's external accounts.
Although tensions in the Middle East and the geopolitical risk have risen sharply since October 2023, there have been contrasting developments in the maritime trade and energy markets. While the cost of some freight categories has risen, oil prices have fallen, mainly due to abundant supply. An escalation of the conflict is still a possibility and would drive energy prices higher. In an already tense market, the price of LNG on the European market is particularly sensitive to the geopolitical context. It is against this backdrop of geopolitical tension and depressed oil markets that the Gulf countries are seeing their financing requirements increase. Furthermore, as part of their diversification policy, they need a peaceful regional environment, particularly in the Red Sea.
The economy continues to hold up. A new period of drought will affect growth in 2024, but non-agricultural activity remains sustained. Investment is recovering sharply and the rapid drop in inflation is buoying household consumption. The country's macroeconomic stability is not under threat. Another cause for satisfaction is the surge in FDI project announcements. Ideally located and providing undeniable advantages against a backdrop of geoeconomic fragmentation, Morocco seems to be taking advantage of the reconfiguration of global value chains. The impact could be considerable. Nevertheless, more will probably be needed to contain rising unemployment.
In the main emerging economies, the pace of disinflation is slowing and the cycle of monetary easing began more than a year ago. Egypt is an exception to this trend, due to a severe balance-of-payments crisis that affected its economy until early 2024. Inflation only began to moderate in Q2 2024, and the Central Bank of Egypt decided to leave its key rates unchanged at its Monetary Policy Committee meeting on 17 October 2024.
The Moroccan economy has held up well against the consecutive shocks of recent years. The GDP losses resulting from the Covid crisis were quickly recovered and the 2023 inflationary shock has passed. With inflation dipping below 1% since the beginning of the year, compared to its peak of 10% at the start of 2023, it is no longer a source of major concern. In June, the Bank of Morocco decided to ease its monetary policy. The solid external accounts and the ongoing consolidation of public finances have also reassured the monetary authorities in their decision-making.
Buoyed by relatively high global energy prices and sustained demand for its gas, the Algerian economy continues to perform strongly. In 2023, economic growth was one of the strongest among the region's hydrocarbon-producing countries, and the outlook for 2024 remains favourable. However, the expansionary stance of economic policy is beginning to show some limitations, not least because of rising fiscal imbalances. While the risks of macroeconomic instability are largely contained in the short term, rebalancing the engines of growth remains a major challenge in the medium term. A number of recent decisions by the authorities are moving in the right direction, but efforts to diversify the economy will need to be continued
Energy and mineral commodities are central to the low carbon transition process. Latin America, which boasts abundant amounts of minerals and key metals for the transition, and GCC[1] countries, which are dependent on revenue from hydrocarbons, are seemingly, on the face of it, taking contrasting paths on the transition journey. However, the macroeconomic consequences cannot easily be determined currently. Gulf countries have some advantages in the oil market, but the pace of the transition could affect revenues more quickly than expected. In Latin America, while the size of critical minerals reserves is brightening the outlook, various national strategies and numerous constraints could curb the scale
The economy of the United Arab Emirates (UAE) is still one of the most dynamic in the region. The strong performances are due to the UAE's sectoral diversification and the attractiveness of Dubai to tourists and investors. Despite the tense geopolitical environment, the short-term outlook is bright, as hydrocarbon production is expected to increase and the steady growth in services and real estate is expected to continue. However, geopolitical risk, oil market uncertainties and US monetary policy are all factors that could threaten this outlook. Uncertainty about the pace and scope of the low-carbon transition is making the longer-term outlook much more uncertain
In Morocco, the latest GDP growth and inflation figures were better than expected, but the latest drought in the country undermines its economic recovery. Regional instability is another real risk to bear in mind. However, the country's adequate economic policy management and solid fundamentals remain supportive factors of macroeconomic stability.
In Saudi Arabia, the decline in oil production is weighing on economic growth, but non-oil activity is buoyant thanks to massive investment programs. In the short term, tight labour market and rising geopolitical risk could constrain the rebound in activity. In the medium term, the kingdom's financial strength should allow the economy to continue to diversify.
Tunisia is going through a serious economic crisis. Real GDP contracted again in the fourth quarter, falling by 0.2% year-on-year after a decline of0.3% in the previous quarter. Estimates suggest that full-year growth was 0.4%, its lowest level for more than a decade (barring the Covid crisis).
Against a backdrop of rising regional geopolitical pressures, the economic crisis is deepening further in Egypt and now poses a threat to public finances. With no agreement reached with the IMF, the balance of payments crisis is continuing to unfold, and the adjustments needed are being postponed. As a result of the exchange rate depreciating and interest rates rocketing, this crisis has pushed the interest burden on government debt to a level that could quickly become unsustainable. As a matter of fact, it could hit 70% of government revenue this year and remain very high next year
Hard hit by the Covid crisis and the consequences of the war in Ukraine, the Tunisian economy is now facing significant financing constraints. External accounts held up fairly well in 2023, but the macroeconomic situation remains very fragile. Debt repayments for this year are significant, and the country is not immune from another shock. In particular, the prospect of rapprochement with the IMF seems less and less likely, fuelling fears about the government's ability to cover all its financing needs. A debt crisis cannot be ruled out.
Egypt’s management of external accounts, which consists of buying time thanks to external support between two drastic exchange rate readjustments, is reaching its limits. The persistence of a significant external financing need, notably due to the amortisation of external debt, and international creditors (Gulf States and the IMF) who condition their support on painful and politically costly reforms, have led the Egyptian economy to a dead end. The banks’ net external position is deteriorating at an alarming rate. Restrictions on foreign currency transactions are increasing, with negative consequences on activity in a country highly dependent on imports
The current period is very favourable for the Saudi economy due to high oil revenues and implementation of extensive reform and investment programmes. Nevertheless, despite real progress in diversification, activity remains vulnerable to oil market vagaries and OPEC production policy. A moderate upturn in activity is expected in 2024 after a slight recession this year. Oil revenues remain decisive for maintaining budgetary balance and implementing Vision 2030 investments. However, the scale of funding requirements and the lack of attractiveness of the Kingdom to foreign investors mean massive use of debt as well as the sale of public assets
For about a decade now, the exploitation of new natural gas reserves in the Eastern Mediterranean has had significant economic consequences for producing countries, and has been upgrading the region’s position on the international gas market. Egypt still dominates the sector, with significant reserves and export infrastructure, but Israeli production is increasingly impacting the region’s exports. 2022 was a very favourable year for the sector due to rising prices and European demand. Despite the current decline in prices on the European market, this trend should continue in the coming years
Egypt is heavily exposed to the consequences of global warming due to its Mediterranean geographical location, high population growth and the importance of the agricultural sector. Already deemed critical, water stress is likely to increase in the medium and long term. The deteriorating trend of various vulnerability and resilience indicators, currently at medium levels, is increasing climate risk in the long term. The financial resources of the Egyptian government are extremely constrained, given the deteriorating macroeconomic situation and the unfavourable outlook. Transformation of the energy mix may be partially funded by private capital. However, funding for climate change reduction and adaptation policies, by definition less profitable in the short term, remains problematic.
Oil production feeds growth volatility in Saudi Arabia, as evidenced by the slowdown expected this year. Nevertheless, the non-oil economy is benefiting from the momentum of investment and household consumption against a backdrop of gradual transformation of the economy and the labour market. State intervention and a favourable exchange rate effect are keeping inflation at moderate levels. Against this favourable economic backdrop, bank lending to the private sector is very dynamic, creating some strain on bank liquidity. The budget surplus posted in 2022 is not likely to be repeated this year due to the expected downturn in oil production and prices. However, public finances are on a positive trajectory thanks to the increase in non-oil revenues.
