GCC economies to recover in 2019 as oil prices remain steady: Moody’s

The Gulf Cooperation Council (GCC) and Africa should see a recovery in the economic growth next year, although the rate of growth could remain below the 2014-15 slump in commodity prices, Moody’s Investors Service said in its new report.

“Steady oil prices would strengthen lenders in the Gulf, where funding and liquidity constraints are easing,” Moody’s said in its 2019 Outlook on Emerging Markets, adding, “We have a stable outlook for credit conditions for GCC corporate.”

However it added the increased oil price is reducing fiscal deficits and governments are slowing the pace of reforms which have raised inflation and constrained companies' profit margins at times in the past two years.

Noting that the regional ethane-based petrochemical companies in particular will benefit from increased oil prices, the report said government spending on infrastructure and strategic projects which contribute to economic diversification will support non-oil businesses.

It said the GCC corporate sector is dominated by state-owned enterprises, many of which benefit from strong business positions, good access to funding and supportive shareholders, and this has helped offset recent economic volatility.

However, small and medium-sized corporates' credit quality improvement will be curbed by rising interest rates, below average economic growth and the knock-on effects of earlier government reforms, Moody’s said, adding that the real estate and construction sectors are most exposed to a softer operating environment.

Over all, the report said, geopolitical risks, policy predictability, commodity prices and currency volatility will be the main drivers of credit quality for corporate in Russia, Turkey, the GCC and South Africa — the emerging markets with the largest number of rated non-financial companies in EMEA — in 2019.

"Commodity price trends, tightening global financial conditions, and domestic and geopolitical issues will drive credit risks to different degrees for issuers in Africa and the Middle East," said Moody's Managing Director Atsi Sheth.

"In this context, policy responses could be important determinants of credit conditions. Turkey faces mounting institutional challenges and policy uncertainty, and there are also ongoing hurdles to reform in parts of the GCC."