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S&P: MENA sovereign rating trends 2019 published

S&P Global Ratings expects economic growth in MENA to remain broadly stable in 2019. We forecast 2.8% on average in 2019 (weighted by nominal GDP) compared with 2.6% in 2018 (see “Middle East And North Africa Sovereign Rating Trends 2019” published today).

The net hydrocarbon importing sovereigns will continue to outperform their regional hydrocarbon-endowed peers, with economic growth at 4% in 2019, improving marginally to 4.5% over the remainder of the forecast period to year-end 2021. This is partly due to the “catch-up effect” whereby countries with lower wealth levels have higher economic growth rates. However, stronger growth also reflects ongoing reforms, strong domestic consumption, and sufficiently robust external demand. We project economic expansion of 2.5% in 2019 by the MENA net hydrocarbon exporters up from 2.1% in 2018, after contracting by 0.5% in 2017.

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Non-oil activity in MENA oil exporters will remain supportive of growth over the medium term, due to strong government capital expenditure in Qatar, Saudi Arabia, Iraq and, Kuwait. Our growth outlook for MENA oil exporters is subject to significant volatility predicated on future oil prices. The average Brent oil price rose to about $72 in 2018, up from $52 in 2017. We assume Brent will fall to $55 in 2019, remaining at the level in the subsequent years (see “S&P Global Ratings Lowers Brent And WTI Oil Price Assumptions For 2019 Through 2020; Natural Gas Price Assumptions Are Unchanged” published Jan. 4, 2019).

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Flat oil prices and the completion of some large-scale projects are likely to result in a modest deceleration in MENA net hydrocarbon exporters’ economic growth over 2020-2021, to 2.3% on a weighted average basis. Of the 13 sovereigns we rate in MENA, seven are in the ‘BBB’ rating category or above. The average MENA sovereign rating has broadly stabilized at close to ‘BBB-‘, although the GDP-weighted average is closer to ‘BBB’. The gap between the weighted and unweighted average ratings widened again in 2018 due to the rebound in oil prices, which supported the GDP of the largely higher rated oil-exporting Gulf Cooperation Council (GCC) sovereigns.