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For Middle Eastern economies however, implementing pragmatic macroeconomic policies to stabilize global oil prices at $50 to $60 per barrel is likely to remain a key challenge to revenue growth. Even so, the region is anticipated to witness around five percent growth this year due to the gradual shift in investment to non-oil sectors. Steady inflation will bolster private consumption and further support the region's progress.
The analysis uses various indicators to demonstrate the economic position of the Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE), Egypt, Algeria and Nigeria.
Owing to favourable government policies and the stable improvement in private sector performance, the KSA economy saw moderate growth in the first half of 2015, despite falling oil revenue. The Purchasing Managers’ Index already went up from 58.5 in February to 60.1 in March this year, signifying an expansion in business activity in the non-oil private sector. Thus, all signs point towards business sentiments staying bullish in H2 2015.
“Diversification of the UAE economy has made it less vulnerable to oil price fluctuations, and heightened non-oil private sector performance will be the key factor that drives economic growth to approximately 4.5 per cent in H2 2015,” said Krishanu Banerjee, Frost & Sullivan Emerging Market Innovation Senior Research Analyst. “Along with increased non-oil activities, greater public sector spending and a large amount of foreign reserves will contribute to the country’s economic well-being.”
In Egypt, approximately 3 percent of growth is expected in H2 2015. Nevertheless, risk factors will remain due to the impending transition in political system that has not yet occurred because the Supreme Court delayed the parliamentary elections. The political uncertainty is subduing demand, which in turn has decreased output in the country’s non-oil private sector and hampered employment. Besides, a weak domestic currency is boosting input costs and a situational turnaround is unlikely in the next six months.
Similarly, the H2 2015 growth outlook of the Algerian economy is bleak owing to economic uncertainty and a decline in global oil prices. As the fall in oil prices is exerting pressure on budget allocation, Government welfare schemes like food and electricity subsidies are getting hampered. Public expenditure cuts and infrastructure project delays are worsening the situation without any respite expected in the second half of 2015.
“In Nigeria, high interest rates, devaluation of the local currency, and increased cost of production will be the main areas of concern for the newly elected President Muhammadu Buhari,” said Banerjee. “These economic dampeners will keep business sentiments bearish in Q3 and Q4 2015. Public sector spending is also likely to be low during this time as the steep decline in crude oil prices has had an adverse effect on government revenues.”
Source: Frost & Sullivan
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