Monthly Insights: February 2021

Global Economics

Vaccination rollouts will determine 2021 growth rates 

Real GDP growth in developed markets largely exceeded expectations in Q4, indicating that economies are getting better with coping with the stresses induced by the Covid-19 pandemic crisis. This improving resilience could soften its impact on the current quarter also, although with Q1 lockdowns deeper and longer, the likelihood remains that the period will be quite weak. Looking ahead, the speed with which governments implement vaccination programmes will be a principal determinant of the pace of growth.

Regional Economics

GCC budget deficits to remain substantial even as economic outlook improveHigher oil prices and significant progress with Covid-19 vaccine rollouts support our view that the outlook for the GCC economies this year is brighter.  However, budget deficits are likely to remain substantial, limiting the scope for additional fiscal stimulus to support a recovery and resulting in more debt issuance from the region this year.

Fintech: The UAE Ecosystem

The UAE has rapidly established itself as a leading hub for fintech startups in the MENA region but competing fintech ecosystems are rapidly rising in the region. For the UAE to maintain its lead, it needs to continually adapt its ecosystem be it regulatory or funding to address the changing dynamics and trends of the fintech sector.

Positive outlook for Israeli economy

With one of the most rapid rollouts of vaccinations globally, the outlook for the Israeli economy in 2021 is broadly positive, as falling Covid-19 case numbers will enable a normalisation.

CBE keeps rates on hold

The Central Bank of Egypt (CBE) kept its benchmark overnight deposit rate on hold at 8.25% at its February 4 meeting, in line with our expectations. This is despite a fall in inflation in December. Our thinking remains that there will be a further rate cut this year, but the timing of this will hinge on subsequent inflation prints.

Markets

US yields race ahead

US bond yields have surged higher in line with rising inflation expectations on signs that the US economy is recovering faster than expected from the Covid-19 pandemic as well as the anticipation of USD 1.9trn of fiscal spending. Current yields on 10yr USTs of almost 1.4% are well above our conservative estimates for yields to hit 1.10% at the end of 2021 and we are marking our expectations to market accordingly.

EM at risk of higher yields

The sharp steepening of the UST curve and a fitful start to Covid-19 vaccination campaigns in emerging markets means there is a risk of EM FX pulling back sharply against the dollar.

Decision time for OPEC+

The next ministerial meeting will decide whether to add barrels back to a hot oil market.

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