Weekly Economic Commentary – Aug 7, 2016

7 August, 2016
read 8 minutes


In July stock markets posted solid gains and in the first week of August Wall Street touched new highs on the back of stellar job market figures. However in Europe bourses were less sanguine and in Japan stock prices ended the week lower despite yet another set of Abenomics measures. Going forward, it is unlikely that investors will take up risk. After six consecutive quarters of earnings declines since Q3 2014 further downward revisions are worse than expected this quarter. The largest regional markets KSA and UAE were in negative territory, but the others advanced with Egypt the top performer on expectations of an IMF loan agreement. In currency markets the JPY touched a 3-month high on the announcement of the new economic package, while the GBP sunk after the BoE lowered its reference rate. Oil prices regained some lost ground, while gold continued to lose appeal.

Global Developments


  • US non-farm payroll employment increased by 255,000 in Jul, down from 292,000 in Jun, but way above market expectations of 180,000. Job gains occurred in professional and business services, healthcare, and financial activities. Unemployment stood at 4.9%.
  • The US ISM manufacturing index fell 0.6 point to 52.6 in Jul. Nevertheless momentum remains positive, as production advanced and new orders held onto most of previous gain. Inventory and employment were in recessionary territory.
  • The US ISM non-manufacturing index fell 1 point to 55.5 in Jul. The components were generally mixed as new orders edged higher and the trade details suggest net exports were supportive for growth early this quarter. However, the employment index slipped from 52.7 to 51.4 in July.
  • Headline and core PCE deflators in US both increased 0.1% mom in Jun with core PCE, closely watched by the Fed, up 1.6% yoy i.e. within striking distance from the 2% target.
  • Consumer spending in the US rose by 0.4% mom in Jun, while, personal income edged up by 0.2% mom.
  • Americans filing for unemployment benefits increased by 3,000 to 269,000.
  • The US trade deficit rose to USD 44.5bn in Jun (May: USD 41.0bn), imports rose 1.9% mom due to higher oil prices and stronger domestic demand while exports edged up 0.3%.


  • The Bank of England lowered its benchmark rate by 25bps for the first time since 2009, as widely expected, and restarted its QE program to counter recessionary pressures ensuing the Brexit vote.
  • Retail sales volume in the eurozone was flat mom (+1.6% yoy) in Jun after a 0.4% gain in May.
  • German manufacturing orders unexpectedly fell -0.4% mom (-2.9% yoy) in Jun after expanding by 0.1% mom (0.2% yoy) in May. Foreign orders plunged -1.2% (orders from the eurozone were the worst hit), while domestic orders rose by 0.7%.
  • Italy’s industrial production dropped by 0.4% mom in Jun after a -0.6% mom drop in May. Conversely Spain’s industrial production jumped up 0.8% mom in Jun almost the same as the 0.9% mom increase in May.
  • Eurozone PPI fell -3.1% yoy in June, following -3.8% in May, mainly due to energy prices base effects from the first half of 2015.

Asia and Pacific:

  • The Japanese cabinet approved a USD 274bn stimulus package, the latest effort by Mr. Abe to revamp the economy.
  • Japan’s Nikkei-Markit PMI remained in recessionary territory at 49.3 in Jul vs 48.1 in Jun, due to weak international demand and yen appreciation; employment growth picked up slightly.
  • Japanese consumer confidence index fell to 41.3 in Jul, down from 41.8 in Jun, with losses across most major categories, as wage stagnation discourages spending on large items.
  • China’s Caixin manufacturing PMI beat expectations at 50.6, driven by modest gains in output and new orders, on the back of higher infrastructure investment.
  • Chinese official manufacturing PMI, which is more sensitive to corporate restructuring was almost unchanged at 49.9 in Jul from 50.0 in Jun. The production sub-index moderated from 52.5 in June to 52.1 in July, new orders eased slightly from 50.5 in June to 50.4 in July. New export orders declined from 49.6 in June to 49.0 in July.
  • The official China services PMI advanced from 53.7 in Jun to 53.9 in Jul. New business eased from 50.8 to 49.9 in Jul, but business expectations improved from 58.6 to 59.5.
  • The Indian Parliament voted to substitute the tangle of national, state and local taxes with a unified VAT greatly simplifying the tax system. If nothing else the reform will eliminate the lines of trucks at state borders, which can wait anywhere between a few hours to a few days for officials to inspect documents and wares.
  • The Reserve Bank of Australia cut the overnight cash rate by 25bps to 1.5%.
  • South Korea’s exports in July fell 10.2% yoy, the fastest annual rate since Apr and the 19th straight month of declining exports. Imports plunged 14.0% yoy.
  • Korean inflation was subdued in July, at 0.7% yoy after a 0.8% yoy gain in the previous two months due to declining global energy prices.

Bottom line: The resilience of the US job market injects a much needed dose of optimism in the prospects for global growth, despite the uneasy feeling over the next Presidential election. Elsewhere, especially in Europe, data appear weaker even before the consequences of Brexit materialize. In Japan another bout of government spending is unlikely to be more successful than the previous ones, while China shows timid signs of stabilization.

Regional Developments

  • Egypt’s President has been trying to garner public support for the tough measures that are likely to be introduced as a result of the IMF loan negotiations – including subsidy cuts, tax reforms, and privatisation of state-owned companies. According to the finance minister, “good progress” is being made with the IMF negotiations, which relate to the current budget, and are expected to continue till mid-Aug. He also expects parliament to pass the Value Added Tax (VAT) law by end-Aug or early-Sep.
  • Egypt’s cabinet has approved plans for an international bond issuance of between USD 3-5bn, disclosed a finance ministry official.
  • Egypt is likely to sell 20-30% stake in the state-owned companies that are slated for IPOs, revealed the finance minister. Separately, the Ministry of Investment is expected assess eight state-owned petroleum companies for their suitability for a listing on the exchange; the IPOs are likely to happen before the end of the current fiscal year.
  • Egypt’s trade deficit narrowed by 24.6% to EGP 25.2bn (USD 2.8bn) in May 2016, with imports down by 13.3% amidst an uptick in exports by 9.1%; the volume of trade was down 7.8% to EGP 61.8bn.
  • Mortgage companies in Egypt have granted funds estimated at EGP 540mn (USD 60.7mn), while leasing activity was up 11.3% yoy to EGP 11bn (USD 1.2bn) in H1 this year, revealed the Chairman of the Egyptian Supervisory Authority.
  • Iraq’s oil exports generated USD 3.744bn in revenue in Jul, according to the oil minister, with average production for the month over 3.202mn barrels per day.
  • Jordan and Britain signed an MoU relating to financial aid, whereby the latter would support the former’s economic opportunities program (with a total value of GBP 110mn) and support education (via grants upto a value of GBP 80mn).
  • Starting Sep, gasoline prices in Kuwait are to be hiked by almost 73%; according to the finance ministry, “rationalising” subsidies would save the government KWD 2.6bn (USD 8.7bn) over three years. Kuwaiti MPs have called for providing handouts to citizens to deal with this increase.
  • Kuwait plans to invest KWD 4.75bn (USD 15.75bn) in its 2017-2018 development plan, of which KWD 1.59bn or 33.5% will be borne by the state budget. E-government is one of the key priorities of the 5-year plan (that forecasts total spending of KWD 34.15bn), while other projects of note include setting up an urban monitor (due to finish by Sep 2019), and execution of the five-year IT plan (due by end-Dec 2019).
  • Lebanon’s Byblos Bank/AUB Consumer Confidence Index remained low, averaging 36.1 in Q2 (Q1: 35.9). About 78% of the surveyed Lebanese considered their personal financial situation “worse off” in Q2 than it was six months earlier.
  • Despite the deregulation of prices of petroleum products, Oman‘s CPI inflation rate edged up by a mere 1.1% yoy in May. The average inflation for the first five months of 2016 was lower at 0.6%, compared with the same five-month period last year.
  • US trade surplus with Qatar surged 117.5% yoy to QAR 9.35bn (USD 2.57bn) in Jan-May this year. Bilateral trade during this period picked up by 40.4% to USD 3.65bn, while transportation equipment accounted for majority of US exports to Qatar.
  • Population in Qatar fell 6% mom in Jul, but was up 9.73% in yoy terms to 2.3mn; this is the lowest recorded so far this year, but most likely a seasonal dip as people spend summers abroad.
  • Saudi Arabia’s non-oil sector activity grew to an 8-month high, with PMI rising to 56 in Jul (Jun: 54.4), thanks to a sharp rise in output – the quickest rate of expansion since Sep 2015.
  • Saudi Arabia will need to employ 2.5mn more Saudis than are currently employed in the private sector to meet its Vision 2030 goal (4.1mn Saudis in the private sector), according to research by Oxford Strategic Consulting.
  • Saudi Arabian Monetary Agency (SAMA)’s decision to extend SAR 15bn (USD 4bn) of one-year loans (at an undisclosed discount) to Saudi banks should ease short-term liquidity pressure. The banking sector has witnessed a 7% decline in public sector deposits so far this year, which represent 20% of total system deposits.
  • The share of foreign investors in the Saudi market is currently around SAR 1.6 trillion, or only around 1%; new rules – including reducing the minimum value of assets that foreign companies are required to manage and shifting from same-day trading to a two-day system – are likely to be introduced by end-Sep. More measures and controls to reduce restrictions on foreign investments are to be announced by end of the year or by mid-next year at the latest, disclosed the CMA chairman in an interview to the Wall Street Journal.
  • Profits of listed Saudi banks marginally rose by 0.75% to SAR 23.3bn in H1 this year; rising pressure on profitability reflects the rising funding costs and tightening liquidity from decline in deposits.
  • World Bank estimates that GCC lost USD 157bn in oil revenues last year and is expected to lose another USD 100bn this year. (For more on how MENA is reacting to the new oil normal: http://www.worldbank.org/en/region/mena/publication/mena-quarterly-economic-brief-july-2016)
  • The consumption of natural gas in the Middle East is expected to rise to 738bn cubic metres (bcm) in 2040 from 480 bcm in 2015, making it the world’s second-largest gas-importing area by 2040, according to research from Apicorp.

UAE Focus

  • UAE PMI touched a 10-month high of 55.3 in Jul (Jun: 53.4), with job creation rising to the highest level in 14 months and output reporting a robust increase to 62.1 (an 11-month high). New export orders declined to below the 50-point mark; at only 47.9, it was the fastest rate of decline since the PMI survey was initiated in 2009.
  • UAE is on track to issue the Federal Debt Law later this year, revealed the undersecretary of the Ministry of Finance. Once the law is finalised, UAE is expected to issue debt worth about AED 80-100bn.
  • GCC’s industrial investments in UAE reached AED 4.31bn in 2015; around 42% (AED 1.8bn) of the investment was within the non-metallic mining industry while metal products and the food and beverage industry accounted for 16% and 9.5% respectively.
  • Saudi Arabia imported gold worth USD 1.8bn from the UAE last year, according to the Dubai Chamber of Commerce and Industry.
  • Volumes on the Dubai Gold and Commodities Exchange (DGCX) grew by 49% yoy to over 11mn contracts till July this year; overall volumes in Jul was up 47% to 1,674,268 contracts.
  • Abu Dhabi International airport reported a 6.6% yoy increase in passengers to more than 11.8mn in H1 this year. Mumbai was the top destination from the Abu Dhabi airport, reporting a 26% yoy rise in the route’s passengers in Jun to 70,300 persons.
  • UAE’s Ras Al Khaimah emirate reported a 23% rise in Indian tourists in H1 2016, making the country the third largest international source market.
  • UAE ranks 29th globally in the E-Government Development Index, EGDI, issued by the United Nations Department of Economics and Social Affairs. The index comprises three indices e-services, human capital, and communications infrastructure; UAE moved up four places in the e-smart services index, tying with Estonia at 8th globally.

Media Review
A glimpse from the US on the convulsions in Turkey
In depth analysis of US GDP numbers and revisions
The economist who inspires Trump
Another month, another Abenomics plan
India’s GST
Saudi reform plan may stifle economy in short-term
SAMA and funding to banks
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