Egyptian economy is picking up on the back of stronger external demand
Recovery of non-oil economy in UAE and Saudi Arabia gains momentum
The pace of recovery in non-oil sectors of the UAE and Saudi Arabia, the two largest economies in the Arab world, is gaining a foothold as output increases and exports climb.
Meanwhile Egypt, North Africa’s top economy, picked up thanks to stronger external demand, according to the latest purchasing managers’ index (PMI) survey.
In August, the UAE’s non-oil private sector economy grew at the fastest pace in 30 months with a “sharp expansion” in new orders and output. The latest Emirates NBD PMI survey, a key gauge of the health of the non-oil sector, rose to 57.3 in August from 56 in July following a record increase in company inventories – the largest in the survey’s history.
A reading of above 50 on the Emirates NBD PMI gauge, produced in conjunction with IHS Markit, indicates growth in the country’s non-oil economy, while a figure below 50 indicates a contraction.
“The August PMI survey shows a strong expansion in the non-oil private sector, underpinned by sharply higher output, new orders and inventories,” said Khatija Haque, the head of Mena research at Emirates NBD, Dubai’s biggest bank by assets.
“Firms have indicated that new projects and competitive pricing are supporting demand and activity in the non-oil sector. This is in line with our view that investment ahead of Expo 2020 will be the key driver of the UAE’s non-oil growth over the next few years.”
The report also noted that new export orders rose for the first time in three months, with other GCC countries cited as key sources of international demand.
However, the rate of growth was marginal. Overall, business confidence remained optimistic in the UAE, as the companies that were surveyed expected further improvement in market demand and economic conditions in the coming months.
August was also the strongest month for Saudi Arabia’s non-oil private sector since April as exports rose, according to the headline seasonally adjusted Emirates NBD Saudi Arabia PMI. It was, however, below the long-run average with activity picking up to 55.8 last month from 55.7 in July.
“The recovery in export orders helped boost overall new order growth to the fastest rate in four months in August, while output also showed a sharp rise last month,” Ms Haque said.
Companies recorded a rebound in new export orders, growing for the second time in five months. However, firms also cited pressure to increase costs while facing limitations from a more competitive landscape. These pressures signalled the lowest job creation rate in the kingdom since April.
“Although the level of positive sentiment dipped to the lowest since October 2016, firms retained positive expectations over the 12-month outlook for output,” according to the report.
In Egypt, the non-oil private sector rose to its highest level in 23 months thanks to higher exports, according to Emirates NBD PMI gauge. It climbed to 48.9 last month, up from 48.6 in July. However, despite the improvement, the most populous Arab country is still in contraction territory.
Egypt suffered a 31-year inflation rate high in July as the government continues to cut subsidies, following a decision in November to devalue the Egyptian pound, which lost half its value – steps Cairo took to secure a US$12 billion loan from the IMF.
“As well as a stronger global economy, Egyptian exporters have continued to benefit from the boost to competitiveness resulting from the weaker pound,” said William Jackson, a senior emerging markets economist at London-based Capital Economics.
“The one piece of disappointing news was that price pressures remained elevated. Nonetheless, we think headline inflation has now peaked ... and should fall sharply by the end of this year, paving the way for interest rate cuts,” he noted.