13 July 2018 ( Lagos ) : Middle East & North Africa (MENA) region witnessed fragile growth in Q4 2017 of 0.6%, the slowest pace in four quarters, as weak performance from oil producers (which accounts for ~67% of the regions GDP) – a fallout of OPEC production cut – dragged overall output. However, oil importers gained steam in Q4, specifically Egypt, as stable external sector balances, economic reforms and higher public investment continues to support growth. 

Precisely, Saudi Arabia’s economy further contracted for the fourth consecutive quarter in Q4 17 (-1.2% YoY vs. Q4 16: 2.1% YoY) underpinned by a sharp decline in the oil sector (- 4.3% YoY). For Iran, economic activities grew by 4.4% YoY in the first three quarters (Mar – Dec 17) of the current fiscal year, on the back of improvement in non-oil GDP. 

Analysts note that oil-led growth in Iran has particularly maxed out following ramp up in crude production in 2016 underpinned by the Tehran’s nuclear power deal which removed most sanctions originally imposed by world powers. Elsewhere in Morocco, whilst manufacturing and non- agriculture sectors surged, overall growth weakened in Q1 18 to 2.9% YoY (Q1 17: 3.8%) on the back of moderation in agriculture sector (-0.5% YoY).

On a positive note, economic growth in Egypt remained resilient despite weak performances across MENA region. Specifically, the impact of economic reform continued to play out positively in Egypt as Q2 17/18 (October – December) GDP numbers expanded by 5.2% YoY (Q1 17/18: +4.3% YoY) touching the highest level seen in 6 years. Overall, even as activities remained buoyant in Egypt, slowdown in Morocco and Iran coupled with prolonged recession in Saudi Arabia left the region’s economic activities on a tightrope.

Differing Inflation paths across the MEA region

The impact of responsive monetary policies, together with the high base of last year, helped tame inflationary pressure across SSA while consumer price movement followed divergent pattern in MENA region.

For SSA, Kenya’s inflation sustained its deceleration over 2018 with April data reaching multi-year low of 3.7% YoY. Though inflation ticked up in May (+97bps to 3.95% YoY), driven by surge in prices of food and alcoholic beverages, the continued recent consumer price temperance was on the back of weather-induced high base of 2017. 

The high base impact also played out in Nigeria wherein inflation witnessed moderation over the first five months of 2018 (-290bps to 12.5% YoY). Elsewhere, pass-through from receding drought initially softened South Africa’s inflationary worries as March headline inflation (3.8% YoY) reached its lowest level in seven years4. 

However, inflationary concern resurfaced in recent times (April: +70bps to 4.5% YoY) following the twin impact of the implementation of the “sin tax” and 1ppt increase in VAT which came into effect in April.

To stem widening fiscal deficit and subsequently boost non-oil revenue, Saudi Arabia jerked up energy prices and introduced VAT on some items with attendant impact on consumer prices in January (+410bps to 2.95%). For context, inflation averaged 2.8% YoY over Q1 18, from deflation in prior quarter of -1.36% YoY, with tobacco and transport prices seen as the biggest driver. 

For Iran, nonetheless its currency pressure, inflation has largely played within the upper single digit levels for most part of the year – May inflation jumped +180bps to 9.7% YoY driven by pass through from higher energy inflation. 

Furthermore, whilst the positive impact of high base of 2017 remained the driver of inflationary decent in Egypt with May print shedding 170bps to 11.4% YoY (May 17: 29.7% YoY), analysts highlight that inflation upsurge in Morocco persisted (YTD: +80bps to 2.7% YoY) due to higher food prices.

Reporting for EasyKobo on Friday, 13 July 2018 in Lagos, Nigeria

Source: ARM Securities Limited

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