The latest Crédit Agricole Private Banking research report, ‘Macro Comment – Eastern Promises: MENA Update’, noted that there is sustained economic growth in the UAE and Saudi Arabia, as compared to other countries in the MENA region.
“With a new PMI record in the UAE, once again new orders and new export orders components reflected strong growth, while job creation was sustained. Similarly, there was also a new PMI record in Saudi Arabia as output expanded along with new orders”, said Dr. Paul Wetterwald, Chief Economist, Crédit Agricole Private Banking.
Dr. Paul Wetterwald continued, “Demand in the UAE and Saudi Arabia was reported as strengthening, both at home and abroad. Interestingly, PMI data recorded over a period of time have clearly indicated that the MENA region still have the same leaders (UAE, Saudi Arabia), and same laggards (Egypt, Lebanon) in terms of economic performance.”
In the UAE, the August 2014 PMI set a new record at 58.4. Input costs rose, as well as output prices charged by companies. This could extend the upward trend witnessed in CPI indices (+2.3% year-on-year in the UAE in July, +3.4% in Dubai).
While in Saudi Arabia, the August headline PMI (non-oil private sector economy) of 60.7 was at its highest level since July 2011. The most recent data in the PMI series lead to an optimistic assessment relative to the growth over H2 2014. In this context, the latest Saudi Arabia Monetary Authority (SAMA) statistics comfort us in our estimate of a Q2nominal GDP growth in the range of +10% year-over-year. Some increases were noticed on the price front. This was true for purchase prices and for staffing costs. At the CPI level, inflation declined slightly to +2.6% year-on-year in July.
On its side, Egypt’s PMI is on a jig-saw path since the spring. After its July contraction, the index rebounded in August above the 50 expansion/contraction divide, to 51.6. Last month witnessed output, new orders and new export orders’ expansion. Despite these positives, had there been a computation of a Misery Index for Egypt (that is the sum of the unemployment rate and the inflation rate), it would certainly have resulted in a deteriorating figure. Actually, the employment component of the PMI survey contracted, while input and output prices increased. As expected, July’s energy and subsidy cuts dampened the purchasing power of households – the August CPI hit a 38-months high at +11.5% year-on-year. While all of the cascading effects of the subsidy cuts have certainly not pervaded to the CPI numbers yet, the recent softening of world food prices (the FAO food price index is down 3.5% year-over-year and 3.6% month-on-month) will bring some short-term relief to the cost of living, knowing that food items are weighting some 40% of Egypt’s consumption basket.
Once again, the Lebanese situation contrasted with the one in the above mentioned countries, as the August 2014 PMI was unable to reach the expansion zone, registering a 45.5 mark (47.9 in July). Output and new orders data showed contraction, whereas purchasing costs and output prices fell. This could push the CPI lower in the coming months: for the time being inflation stand at +2.7% year-on-year (July figure).
Dr. Paul Wetterwald concluded, “Beyond a short-term perspective, inflation risk is biased to the upside in most MENA countries. This applies for countries with high activity levels (Saudi Arabia and UAE), or for countries with risk of currency weakness (Egypt). On the other hand, the uncertainty of food price evolution adds to the risks of all MENA countries.”
