Middle East Economy Watch - September 2024

2024 has seen relatively positive economic developments for countries in the Middle East not directly involved in the Gaza crisis. However, the year has still been challenging for the region, with the economic impact of the conflict extending to neighbouring countries. 

In June, OPEC+ overcame internal tensions and agreed to extend its cooperation agreement at least through 2025 and a further adjustment was made in September, reflecting renewed supply-demand dynamics in the oil market. Additionally, non-oil sector growth indicators look solid this year. Fiscal outturns have also been positive so far, with the UAE, Qatar and Oman achieving surpluses and Saudi Arabia narrowing its deficit. 

In this report, we also explore two themes in detail. First, Egypt has experienced a remarkable economic turnaround this year, following a US$35bn investment from the UAE. This has enabled the implementation of important reforms, including a liberalisation of the currency regime, which has helped to bring down inflation. As a result, Egypt has managed to unlock additional funding support from multilateral institutions and a more positive view from the market, leading to lower government debt yields. However, significant challenges remain, including the ongoing disruption to trade through the Suez Canal and persistent challenges with poverty and underemployment.

Our second theme looks at another positive development for the region - its growing leadership in the global AI evolution. A combination of robust ICT infrastructure, strategic government leadership and capital have come together to make the GCC an attractive destination for CEOs of leading AI firms. The region is also well positioned to reap some of the economic benefits of AI, enhancing efficiency and driving innovation across various sectors.

However, uncertainty looms over the region, fuelled by ongoing conflict, disruptions in the Red Sea, and reduced oil production. According to the International Monetary Fund (IMF), while lower global commodity prices and vigilant policy responses have helped to ease inflation, policymakers must focus on ensuring economic stability and maintaining debt sustainability, to enhance medium-term growth prospects. 

That said, as interest rates ease, especially in countries with currencies pegged to the US dollar, access to credit should improve, fostering growth in the non-oil economy. GDP forecasts from the IMF indicate an accelerating growth rate for the wider region to 2.8% in 2024 (up from 2% in 2023) and 4.2% in 2025. For Gulf Cooperation Council (GCC) members, non-hydrocarbon sectors are poised to be the primary drivers of growth as these countries continue to diversify their economies. The region also stands to benefit from shifting trade patterns by reducing trade barriers, diversifying products and markets, and developing alternative trade corridors.