As the most diversified economy of the Gulf countries and a major oil producer, the United Arab Emirates faces a double shock: the economic fallout of the COVID-19 pandemic and plummeting oil prices. The current situation risks accelerating the real estate market crisis in Dubai, which has been developing for several years, eroding the financial health of companies in the construction and services sectors. As credit risk rises, it will place a negative strain on banks. Although public finances seem healthy enough to handle the decline in oil revenues, public debt is bound to rise. The UAE’s solid external position guarantees the dirham’s peg to the US dollar.
The Moroccan economy will see significant consequences from the coronavirus pandemic. Tourism has been at a standstill since March and will remain so until May at the earliest. The automotive sector and remittances from the Moroccan diaspora will also be hit by the crisis in Europe. However, and provided that the situation improves in the second half of the year, Morocco should be able to avoid recession. Macroeconomic fundamentals are solid and the country will benefit from a substantial fall in oil imports. Moreover, the authorities have reacted swiftly to dampen the shock.
Tourism is the main transmission channel of the Covid-19 pandemic to the Moroccan economy. Activity has been at a standstill since March and will remain so until May, at least. The losses will be significant in a sector that contributes to more than 8% of GDP, which is the highest level in the region. On a more positive note, two-thirds of the tourist season comes from June onwards, which might coincide with the easing of restrictions on travel in some countries even if the recovery of the activity would be gradual. The slump in tourism activity will weigh on growth and external accounts. The sector accounts for 15% of current account receipts. However, external stability does not look under threat. Forex reserves are comfortable and external debt is moderate
Economic growth was still robust in 2019 despite a less favourable local and international environment. Healthy external performances fuelled a significant upturn in the shekel, which in turn curbed inflationary pressures. The start-up of natural gas exports in 2020 should support this trend. Under this environment, the central bank has few policy instruments available. It resumed currency market interventions to try to curb the shekel’s appreciation. After the budget overruns of 2019, however, we do not expect public finances to improve significantly given the high level of political uncertainty.
Non-oil GDP growth rebounded strongly in 2019 after three years of disappointing performances. Household consumption and public sector investment spending are the main growth engines driving the recovery. Economic prospects are still positive in the short term due to the slowdown in the pace of fiscal reforms. The fiscal deficit will remain high, although exceptional one-off income and the transfer of spending to extra-budgetary entities should help hold it down. Potential growth is hampered by the erratic pace of fiscal reforms and the mixed outlook for the oil market.
With anaemic growth, strong pressure on hydrocarbon revenue and substantial twin deficits, the macroeconomic situation is worrying. For the time being, forex reserves remain at comfortable levels but the speed and scale of their contraction is a major source of vulnerability over the short to medium term. Meanwhile, although certain decisions suggest a change of tack in the government’s position after years of economic protectionism, this progress is still too hesitant given the challenges. It is also of limited effectiveness whilst the business climate has not yet stabilised.
