Mena inflation to remain ‘uncomfortably high’

Reuters/Ahmed Yosri

• Inflation increased on average to 19.4% between March and December
• IMF forecasts global GDP growth at 2.8% for 2023
• Saudi Arabia’s annual inflation rate eased to 2.7% in March

Inflation in the Middle East and North Africa is to remain “uncomfortably high” for the foreseeable future, according to a leading banking expert.

Headline inflation across the 16 Mena economies increased on average to 19.4 percent year-on-year between March and December last year, as reported by the World Bank in its most recent economic update.

Food inflation across the countries rose by an average of 29 percent.

“My prediction would be that inflation will remain quite uncomfortably high,” said John Hardy, head of FX Strategy at Saxo Bank.

The International Monetary Fund’s World Economic Outlook, published earlier this week, predicted GDP growth in the Gulf will slow this year – as low as 0.9 percent in Kuwait – before most countries pick up the pace in 2024.

• Food prices drive latest hike in Egyptian inflation
• IMF warns of recession due to deeper financial turmoil
• IMF tempers GCC economic growth forecast

Saudi will remain at 3.1 percent, while Qatar is expected to experience a further drop to 1.8 percent.

Hardy said oil is “the currency for the Middle East” and while prices are still high, and income from exports remains high, inflation will be high in the region “just as everywhere”.

For every 10 percent rise in the price of oil, IMF models show a 0.1 percentage point reduction in global growth and a 0.3 percentage point increase in inflation, IMF chief economist Pierre-Olivier Gourinchas said on Tuesday, as quoted by Reuters.

Energy prices have declined sharply since mid-2022. The Brent crude oil spot price dropped from more than $120 per barrel in June 2022 to about $80 per barrel in February 2023 – which is still higher than before the war in Ukraine. 

Earlier this month Saudi Arabia and other Opec+ oil producers announced further oil output cuts of 1.16 million barrels per day, which will come into effect from May.

As a result, oil prices are predicted to rise higher, with $100 a barrel now looking more likely in the coming months, according to Edward Bell, senior director for market economics at Emirates NBD, Dubai’s largest bank.

The IMF raised its 2023 core inflation forecast to 5.1 percent, from a 4.5 percent prediction in January, saying it had yet to peak in many countries despite lower energy and food prices.

It forecast global real GDP growth at 2.8 percent for 2023 and 3 percent for 2024, marking a sharp slowdown from 3.4 percent growth in 2022 due to tighter monetary policy.

There was some good news this week, with Saudi Arabia reporting on Thursday that government data had showed that the kingdom’s annual inflation rate had eased to 2.7 percent in March, from 3 percent in February.