What a second Trump presidency could mean for the MENA region

US president-elect Donald Trump’s return into office is widely expected to have a considerable influence on the economies of the Middle East at large, with Trump having already dropped some hints over what could be expected from his second term during rallies and campaign addresses held during the weeks following his election into office for the second time. Some economists predict that Trump’s tariffs will put extra pressure on US inflation, particularly as he has vowed — although not immediately delivered — a 60% tariff on Chinese goods, as well as a 10% tariff on imports from other countries.

The potential inflationary pressure could push the US Federal Reserve to delay its next round of interest rate cuts, Capital Economics’ James Swanton wrote in a report seen by EnterpriseAM. A Reuters poll of economists echoes the same sentiment, suggesting that the Fed will keep rates on hold when its Federal Open Market Committee meets next Wednesday, 29 January. “If they [Trump’s administration] deliver anything close to what they promised on the tariff front, then we are going to probably see a stalling of disinflationary pressures, where the Fed is not going to be cutting," said Barclays Senior US Economist Jonathan Millar.

What this means for us in the region: As Gulf central banks follow the Fed’s monetary policy decisions by virtue of their USD pegs, they would also hold off on cutting interest rates. For non-Gulf countries, such as Egypt, high interest rates in the US mean higher sovereign borrowing costs.

Trump is also widely expected to impose new sanctions on Iran — which, along with sanctions on Russian oil, is expected to lead to higher oil prices this year, Swanton said. However, rising global supplies of oil and LNG are expected to cause prices to fall back — which could, in turn, cause “the current account and budget balances in the Gulf to deteriorate. Many governments, notably Saudi’s, will turn to fiscal consolidation,” according to Swanton.

More US oil production could directly result in price pressures in oil-producing states in the region: Trump also signaled his intentions of increasing US oil output during his term — which, coupled with estimates from OPEC and the International Energy Agency projecting relatively weak demand for oil in 2025, could create additional price pressures result in “budget tightening by oil-producing states in the Middle East, in turn increasing the risk to government contractors of payment delays and challenges for contracting new projects,” according to a report from advisory firm DGA Group.

However, the potential impact of Trump’s presidency on the region's macro outlook may be over-stated: “The region as a whole is relatively sheltered from a protectionist trade shift in Trump’s second term. The bigger risks to the outlook stem from geopolitics, although the agreed Israel-Hezbollah ceasefire and overthrow of the Assad regime in Syria have potentially paved the way towards a de-escalation of tensions,” Swanton argued.

The truce represents a chance to improve economic conditions in the region, particularly for Egypt, Alraya Consulting Managing Partner Hany Abou El Fotouh told us. “The ceasefire improves regional stability, which will encourage foreign investments and revitalize tourism. For Egypt, the stability of navigation in the Suez Canal is a crucial economic gain, as the canal is a significant source of hard currency. Stability also helps alleviate pressures on Egypt's national security and allows resources to be redirected toward development,” he said. Cairo-based economist Medhat Nafei agreed with this, adding that he expects the escalations in the trade war between the US and China to present a chance for the government to provide incentives for private sector players to increase exports, filling a gap in the US market.

MARKETS THIS MORNING-

It’s a mixed morning for Asian markets, with investors largely holding their breaths as they adopt a wait-and-see approach following the inauguration of US President Donald Trump last night. Japan’s Nikkei is just barely in the green, while South Korea’s Kospi and the Shanghai Index have slipped into red territory.

The picture is more or less the same across the pond, with Wall Street futures broadly flat in anticipation of potential tariffs with several US trade partners.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.4% yesterday on turnover of SAR 6.4 bn. The index is up +2.9% YTD.

In the green: Thimar (+10.0%), APC (+6.4%) and Mesc (+5.0%).

In the red: Alamar (-3.3%), Nice One (-2.9%) and Naseej (-2.6%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.9% yesterday on turnover of SAR 52.8 mn. The index is down 0.5% YTD.

In the green: Fesh Fash (+8.8%), SMC (+7.5%) and Alrasheed (+5.4%).

In the red: Almohafaza for Education (-9.8%), First Avenue (-8.4%) and Lana (-7.8%)