The direct impact of US trade measures on the Middle East and North Africa (Mena) region is likely to be modest, but indirect effects through higher interest rates and currency appreciation could negatively impact growth, especially for dollar-pegged GCC countries, S&P Global Market Intelligence has said.
While Mena exports to the US are moderate, and the region does not maintain a significant trade surplus (excluding Israel and Jordan), the potential introduction of general global tariffs could hinder export growth, the analysis noted.
Specific tariff actions targeting Mena countries seem unlikely, but any blanket tariffs would still have repercussions, albeit with minimal impact on the region’s real GDP and external balances.
S&P Global Market Intelligence does not anticipate responsive measures given the modest economic fallout.
Dollar-pegged countries in the region are likely to face tighter monetary policies as the US Federal Reserve keeps interest rates elevated to combat inflation, the report said. This could stifle private sector investment and dampen real GDP growth. A stronger US dollar, resulting from sustained tariff introductions, would make imports cheaper while diminishing local industry competitiveness, worsening trade balances and lowering GDP growth in these pegged economies.
The likelihood of increased US interest rates is expected to significantly reduce portfolio inflows into emerging market debt securities, including those from several Mena countries, the analysis added.
As the interest rate differential with the US narrows, the incentive to invest in local debt diminishes, potentially leading to capital outflows and liquidity challenges. While Egypt has strengthened its position with Gulf investments and an IMF programme, reduced capital from Gulf monarchies could threaten recent improvements in its debt metrics and external position.
Countries like Tunisia and Morocco may face deteriorating debt sustainability metrics if the interest differential with the US dollar market narrows, the report warned.
Should oil prices decline alongside tighter financial conditions, oil-exporting nations in Mena could be compelled to cut spending and postpone investment initiatives. While weaker economies may mitigate debt sustainability risks through bilateral financing, the overall indirect impacts of prolonged higher interest rates and a stronger US dollar are likely to hamper growth, reduce export competitiveness, and increase liquidity pressures on debt-stressed countries like Egypt and Tunisia, the analysis concluded.
The analysis was produced by S&P Global Market Intelligence, not S&P Global Ratings, which is a separately managed division of S&P Global.
avinash@gdnmedia.bh
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