Weekly Economic Commentary – Oct 19, 2014

19 October, 2014
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Equity markets across the globe tumbled on slowing growth prospects before recovering towards end of the week; even the VIX volatility index declined from a 3-year intraday high. Regional markets mirrored the global trend, with Dubai shares tumbling almost 14%. The dollar firmed while oil prices bounced back from near-4 year lows and gold posted a second straight weekly gain.

Global Developments


  • US retail sales fell 0.3% mom in Sep (Aug: +0.6%), probably a sign of cautious spending ahead of the holiday shopping season. Sales at electronics and appliance stores, however, jumped 3.4% amidst declines reported in many segments including auto dealership and gasoline sales.
  • Producer price index in US slipped 0.1% mom, the first decline since Aug ‘13, dragged down by a 2.6% decline in gasoline prices amid food prices also down by 0.7%. Core inflation remained unchanged in mom terms.
  • According to the Fed Beige book, the US expanded at a “modest to moderate” pace across much of the nation in recent weeks with “most Districts reporting overall growth in consumer spending that ranged from slight to moderate”.
  • US industrial production rose 1% mom in Sep (Aug: -0.2%) – the biggest gain since Nov ‘12 – with manufacturing output up 0.5% (rising from a 0.5% dip the month before) and a 3.9% surge in utilities, the largest since May ‘12. Excluding the volatile auto sector, factory output rose 0.6% while capacity utilization climbed to 79.3%, its highest level since Jun ‘08.
  • NAHB housing market index unexpectedly declined five points to a reading of 54 in Oct. Meanwhile, housing starts gained 6.3% to a 1.02mn annualized rate in Sep from a 957k pace in August as multifamily (+16.7%) and single-family projects (+1.1%) advanced.
  • Initial jobless claims decreased by 23k to 264k in the week ended Oct 11, a 14-year low. The 4-week moving average fell 4,250 to 283,500.


  • Industrial production in the Eurozone slipped 1.8% mom and 1.8% yoy in Aug (Jul: +0.9% mom), thanks to a dip in the manufacture of capital goods. Germany reported a dip of 4.3% while French output fell 0.1%, but production in Italy and Spain rose by 0.3% and 0.1%, respectively. Meanwhile, inflation slumped to 0.3% in Sep, a 5-year low, down from 0.4% in Aug with the only silver lining that core inflation had fallen to 0.7% from 0.9% in August.
  • German ZEW index of economic sentiment fell into negative territory for the first time since Nov 2012, recording -3.6 points in Oct and compares to 6.9 points a month before.
  • Inflation in UK fell to a 5-year low of 1.2% in Sep (Aug: 1.5%) on lower oil prices while prices of the category food and non-alcoholic drinks fell 1.4% yoy, the most since 2002.

Asia and Pacific:

  • With exports up 15.3% and imports rising 7%, China’s Sep trade surplus touched USD 31bn. Inflation meanwhile fell to a 5-year low of 1.6% in Sep on declining oil prices.
  • FDI into China rose 1.9% to USD 9bn in Sep alone, bringing the year-to-date FDI inflow to USD 87.4bn, down 1.4% yoy. Investment from South Korea surged 32.5% yoy while that from Britain grew 32.3% amidst investment from Japan plunging 43%.
  • New bank loans in China touched CNY 872bn while broad money or M2 grew 12.9% in Sep. Separately, the PBoC is set to inject about CNY 200bn worth of three-month loans into five or six listed banks to maintain liquidity.
  • Japan industrial production fell 1.5% mom and 3.3% yoy in Aug, lower than the flash estimate; overall capacity utilization slid 1.7%mom in Aug, following the 0.8% decline in July.
  • India removed controls on diesel prices last week; with diesel accounting for  43% of petroleum consumption, this will ease the subsidy bill.
  • Singapore GDP grew 2.9% in Q3 (Q2: 2.4%), with manufacturing up 1.4%, services output and construction rising 2.9% and 1.4% respectively.

Bottom line: As markets went topsy-turvy on global slowdown worries, data releases from Europe haven’t provided much comfort with even Germany, the export engine, performing below expectations. There are signs of a US recovery and China seems to be holding its own, but the main concern for the region remains the drop in oil prices and geopolitical turmoil.

Regional Developments

  • Bahrain Q2 GDP growth reached 3.2% qoq and 5.6% yoy; GDP growth for the full-year is expected to reach about 3.7% as per Economic Development Board estimates. The non-oil sector grew by 4.7% yoy and 3% mom during Q2, while the oil sector registered 9.3% yoy and 4.1% mom growth.
  • Bahrain will invest USD 22bn in infrastructure in the next four years, according to the Minister of Transportation and Acting Chief Executive of the Bahrain Economic Development Board.
  • GDP growth in Egypt touched 3.7% in Q4, from 2.5% in Q3, taking the 2013-14 fiscal year (which ended in Jun) GDP growth to 2.2%.
  • Egypt paid back USD 500mn to Qatar, as per the central bank governor, and will refund USD 2.5bn at the beginning of Nov.
  • European Union raised the ceiling for financial aid to Egypt from EUR 450mn to EUR 600mn.
  • Jordan inflation slipped to 3.11% in Sep, down from 3.16% in Aug.
  • A proposed law in Kuwait puts a 20-year cap (up to age 50) on unskilled and semi-skilled expats’ residency while skilled jobs, such as doctors, advisers and university professors, should be able to stay until they are 70 years old.
  • Budget deficit in Lebanon was lower on higher revenues: total government revenue in H1 2014 stood at close to USD 5.264bn, compared to USD 6.8bn billion in total expenditures.
  • European Union has allocated more than EUR 130mn to Lebanon in a new Memorandum of Understanding; the funds will be used during 2014-16 with emphasis on justice and security reform, social cohesion projects and the promotion of sustainable management of natural resources.
  • IIF estimates Lebanon’s debt to GDP ratio at 146% in 2014, while fiscal deficit is projected to reach 10.5% of GDP; the report also added that “a stable political environment, structural reform, and the recent discovery of large recoverable gas reserves” could lead to a sustainable higher growth path over the medium term.
  • Remittance inflows to Lebanon is estimated to touch USD 7.67bn in 2014, according to the World Bank and represents a 1.6% yoy increase and compares to inflows of USD 6.92bn in 2012.
  • Tunisia will be raising retirement age by two years to ease the fiscal burden.
  • The value of existing development projects in Oman reached USD 45bn, according to MEED and is spread among government and private enterprises while USD 26bn is the expected investment next year.
  • Oman’s first major wind farm project to generate electricity, at a cost of USD 125bn, is scheduled to begin operating in early-2017. The project, which will have a capacity of 50 megawatts, is to be funded by Abu Dhabi and will be coordinated by Masdar.
  • Size of banks in the Qatar Financial Centre grew by 53.5% yoy to USD 7.4bn at the end of 2013, as per the central bank. Conventional banks represent 72.1% in the QFC with the remainder Sharia compliant institutions while gross loans and advances extended by QFC banks increased by around 58.2% to USD 4.2bn during 2013.
  • Bank claims on the public sector in Saudi Arabia registered a monthly growth rate of 5.1% to SAR 97.9bn by the end of Aug; this is driven by the growth of government bonds, both at monthly or annual levels, and bank credits on government companies in the form of loans, advances and overdrafts.
  • Saudi Arabia increased oil production to 9.7mn barrels per day (bpd) in Sep from just under 9.6mn bpd in Aug – even while prices were on the decline, according to the OPEC monthly oil market bulletin.
  • About USD 180bn worth of contracts for new construction projects will be awarded in the GCC this year, the largest amount for six years, despite falling oil prices, as per a new MEED report.

 UAE Focus

  • The UAE Cabinet approved the draft AED 49.1bn 2015 budget, with infrastructure and economic sector allocated AED 1.8bn or 3.7% of the budget, while AED 1.6bn (3.2%) had been allocated for financial assets, while AED 1bn was allocated for federal expenditures (2.1% of the budget).
  • Inflation in Dubai rose to 3.07% in Q3 and compares to 1.02% during the same period a year ago. Housing and utility costs, which account for almost 43.7% of consumer expenses, jumped 5.11% yoy.
  • Hotel occupancy in Dubai grew 0.3% to 76.3% and the average daily rate declined by 4% to AED 671.87, thereby dropping revenue per available room by 3.7% to AED 512.83.
  • As per the International Air Transport Association forecasts, UAE air passengers will grow at an average annual pace of 5.6% in the next 20 years.

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