Weekly Economic Commentary – Oct 2, 2016

2 October, 2016
read 9 minutes


The fireworks on global stock markets after the dovish measures by the Fed and the BoJ did not last long, as a new banking crisis is unraveling in Europe, with Deutsche Bank in the eye of the storm after the US authorities threatened to impose a USB 14bn fine. European bourses sunk in mid-week — led by the financial sector — but also in Japan and in most emerging markets. Wall Street held up closing Q3 with the S&P 500 rallying on Friday and recording its best quarter so far in 2016. Regional markets followed other emerging markets on the way down, despite oil prices rebounding in response to a ventilated agreement within OPEC on production cuts. In FX markets the yen weakened after another grim inflation figure demonstrated that even exceptional monetary measures are ineffective. Gold prices lost most of the post FOMC meeting gains.

Global Developments


  • US GDP expanded 1.4% qoq ann in Q2 better than the second estimate of 1.1 %.
  • New orders for US manufactured durable goods were unchanged in Aug mom after a whopping 3.6% gain in July.
  • The US core PCE deflator closely watched by the Fed rose 0.2% in Aug vs a 0.1% increase in each of the prior two months, reaching 1.7% yoy, the strongest since Feb. The headline PCE deflator increased 0.1% mom and 1% yoy.
  • The Case Shiller 20-city composite index of US house prices rose 5% yoy in Jul, compared to 5.1% in Jun. Growth in the 10-city index also decelerated to 4.2% yoy from 4.3% in June.
  • Pending single-family home sales in the US, fell 2.4% mom in Aug to its lowest level since Jan and is down 0.2% yoy.
  • The US Conference Board Consumer Confidence Index added 2.3 points in Sep reaching 104.1 its highest level since Aug 2007.
  • US unemployment benefits claims increased by 3k to 254k with the 4-week moving average declining by 2,250 to 256k- a level that confirms the solidity of the labour market.
  • University of Michigan’s consumer sentiment increased to 91.2 in Sep from a preliminary reading of 89.8 and 89.8 in Aug.
  • US personal spending was flat mom in Aug, after rising 0.4% in the previous period. It is the worst performance in five months.


  • Inflation in the euroarea increased 0.4% yoy in Sep, after 0.2 % in Aug, boosted mainly by energy prices. German inflation rate hit a 16-month high at 0.7% yoy. France inflation was 0.4% yoy following a 0.2% in Aug. Italy’s inflation reached 0.1% yoy in Sep, following -0.1% in Aug.
  • Eurozone M3 money supply growth was 5.1% yoy in Aug vs 4.9% in Jul, propelled by currency in circulation and overnight deposits
  • The German Ifo Business Climate Index rebounded strongly in Septo 109.5, the highest level since May 2014, after a plunge to 106.2 in Aug on fears of a Brexit-induced slowdown in growth.
  • German retail sales fell -0.4% mom in Aug vs 0.5% increase a month earlier.
  • German unemployment rate was recorded at 4.2 %  in Aug , unchanged from Jul and down from 4.5 %  a year earlier.
  • The eurozone’s Conference Board Leading Economic Index zone remained unchanged in Aug at 107.2.
  • The eurozone’s economic sentiment indicator regained altitude to 104.9 in Sep after a plunge to 103.5 in Aug.
  • UK’s GDP domestic product expanded 0.7% qoq in Q2, vs 0.4%  in Q1.
  • Turkey recorded a USD 4.69 bn trade deficit in Aug, 5.3 % lower than a USD 4.95 bn gap a year earlier. Exports jumped 7.7% yoy following an 11.6% fall in Jul, thanks to manufacturing products.

Asia and Pacific:

  • Japan core CPI dropped -0.5 % yoy in Aug following a -0.4 % fall in Jul, underscoring that deflationary pressures are not abating.
  • Japan’s industrial output rose 1.5% mom in Aug, recovering from a flat July figure thanks to a strong performance of the electronic sector.
  • Japan’s retail sales fell for the sixth consecutive month, by -2.1% yoy in Aug.
  • Japan jobless rate unexpectedly rose to 3.1 % in Aug from 3.0 % in Jul.
  • Hong Kong trade gap rose to HKD 32bn in Aug from HKD 25.1bn shortfall a year earlier. Exports went up 0.8% to HKD 309.7bn and imports rose at a faster 2.8% to HKD 341.8bn.
  • South Korean industrial production growth accelerated to 2.3% yoy in Aug (Jul: 1.6%).
  • South Korea recorded a USD 7.10bn trade surplus in Sep, compared to a USD 8.89bn surplus a year earlier, as exports fell more than imports.
  • Taiwan’s industrial production expanded 7.7% yoy in Aug after a -0.3% yoy drop in Jul.
  • Singapore’s industrial production rose 0.1% yoy in Aug vs -3.5% in Jul; biomedical manufacturing and transport engineering disappointed while electronics were buoyant.

Bottom line: The data flow points to a stronger growth in the US, but also to the dawn of a recovery in Asia, with the exception of Japan where the outcome of the new stimulus is not materializing yet. The improvements in the global macro picture are endangered by the murky financial situation in China and in Europe, where Deutsche Bank is the latest victim of a banking crisis that after Cyprus, Ireland, Spain and Italy has spread to the core economy of the eurozone.

Regional Developments

  • Bahrain is planning a dual-tranche, benchmark sized US dollar denominated bond issue, and investor meetings were already lined up, reported Reuters.
  • Egypt’s PM revealed that the country expects to receive the second tranches of the World Bank and African Development Bank (USD 500mn) loans before the end of this year.
  • Money supply (M2) in Egypt was up 18.3% yoy to EGP 2.152trn (USD 242.1bn), according to the central bank.
  • Egypt’s central bank offered treasury bonds worth EGP 1.0bn last week: one worth EGP 750mn, to mature in 5 years and another at value of EGP 250mn, to mature in 10 years.
  • Public banks in Egypt captured 40.8% (or EGP 268.2bn) of the total investments in the treasury bills put forward by Ministry of Finance by end-Jun. Private banks acquired 30.7% while foreign and specialized banks accounted for the rest.
  • Egypt attracted over USD 6.8bn in FDI in the 2015-16 fiscal year and hoped for USD 10bn in 2016-17 after big upgrades to its road and power infrastructure, according to the CEO of the General Authority for Investment and Free Zones.
  • Egyptian investments in Africa have reached USD 7bn, according to the chairman of the General Egyptian Authority for Investments.
  • Spending on petroleum subsidies in Egypt dropped by 28.7% yoy to EGP 51bn in the 2015-16 financial year, stated the Petroleum Minister; this was a sharper decline than reported earlier.
  • Iraq’s plans to raise USD 2bn on international debt markets has been delayed, partially due to the US Congress holding up its guarantee of half the bonds’ value.
  • Jordan’s government will contribute between 2-4.5% to social security health insurance, revealed the Social Security Corporation (SSC); the SSC law includes a provision for health insurance (wherein the government is not obligated to pay) and is expected to be operational by next year.
  • Inflation in Kuwait rose by 0.1% mom and by 2.9% yoy in Aug; housing costs, which account for nearly 29% of consumer expenses, jumped by 7.3%.
  • Oman’s budget shortfall deficit increased 68% to OMR 4.02bn from RO2.39bn in the corresponding period of 2015 exceeded OMR 4 bn as government revenue continued to be under pressure due to the slump in oil prices.
  • Omani crude oil was sold at an average price of USD 35 per barrel during Q1 of 2016 compared to USD 59.3 per barrel during Q1 2015.
  • Oman’s central bank issued government development bonds worth OMR 100mn receiving an enthusiastic response from investors.
  • Qatar’s trade surplus shrank by 35.7% yoy to QAR 8.69bn in Aug; in mom terms, surplus widened by 30%, thanks to higher price for hydrocarbons. Exports of petroleum gases and other gaseous hydrocarbons fell 23.9% to QAR 11.25bn (USD 3.1bn).
  • Workers remittances from Qatar reported a 1.0% yoy increase to QAR 10.98bn in Q1 this year, as per data from the Ministry of Development Planning and Statistics; this accounted for about three-fourths of total debit current transfer during this period.
  • In a bid to promote tourism, Qatar has announced a free-of-charge tourism visa for transit passengers (with a minimum transit time of five hours), which permits to stay in Qatar for up to 96 hours, without applying for an entry visa ahead of time.
  • The Qatar Financial Market Authority revealed that it received 11 requests for acquisitions in 2015.
  • Qatar’s power capacity is expected to reach 13,000MW by 2018 from an existing capacity of around 8,800MW, according to the Qatar Electricity and Water Company.
  • GDP in Saudi Arabia grew by 1.4% in Q2 (Q1: 1.5%) – its slowest rate in more than three years. The oil sector expanded 1.6% yoy, while the non-oil sector grew 0.4%, recovering from a 0.7% fall in Q1.
  • Saudi Arabia’s latest austerity measures include a 20% cut in minister’s salaries and a scaling back of allowances for public sector employees – including a 15% reduction in housing and car allowances for members of the appointed Shura Council, and curb in overtime bonuses at between a quarter and half of basic salaries. Government employees account for about two-thirds of employed citizens. The Okaz newspaper reported that “SAMA has obliged local banks to reschedule consumer loans for employees whose salaries went down”.
  • Saudi Arabia’s central bank decided to inject around SAR 20bn in time deposits into the banking system and introduced two new maturity periods (7- and 28-days) for repurchase agreements, to “support financial stability” in the market.
  • Net foreign assets at Saudi Arabia’s central bank fell by about USD 1bn mom to USD 554bn in Aug. Assets were down by 15.4% yoy to their lowest level since Jan 2012.
  • Saudi Arabia is planning to impose tolls on new roads to be built by the private sector in the future, in line with the revenue generation objectives under the Vision 2030 plan, according to the Ministry of Transportation.
  • Saudi Aramco plans to invest about USD 334bn by 2025, including spending on infrastructure and projects to maintain oil capacity, according to a senior official.
  • An implementation of the Vision 2030 reforms would result in Saudi Arabia’s net international investment position rising to USD 1.3 trillion (77.6% of GDP) by 2030, according to a report by Jadwa Investment. The report also estimates the current account to reach a surplus of USD 135bn (8% of GDP) while non-oil current account inflows rise to USD 262bn (2015: USD 85bn). [The report can be downloaded at: http://www.jadwa.com/en/download/int-l-trade-investment-outlook/gdp-report-16-6-2-1-3-3-2-1-1-1-1-1-1-1]
  • UAE tops the Arab world in competitiveness, rising by one position to 16th globally in the World Economic Forum’s Global Competitiveness Index Qatar and Saudi Arabia both slipped 4 places to 18 and 29 respectively.
  • The deadline for the GCC Rail network has been moved to 2021 (from 2018 as agreed to previously), revealed the UAE’s Minister for Infrastructure Development.

UAE Focus

  • The UAE Federal debt law is likely to be finalised within the next two months between the Ministry of Finance and the central bank; the draft could then be approved early next year, after going through the legislative process and receiving presidential approval.
  • UAE money supply M2 declined by 0.6% mom to AED 1.18trn at end-Aug. Total bank deposits decreased by AED 7.5bn in Aug, while gross credit increased by 0.5% mom to AED 1.55trn.
  • Petrol prices in the UAE will rise by between 3.4-3.8% mom in Oct, while diesel prices are set to rise by 2.3%.
  • Japan oil imports from the UAE touched 25.3 million barrels of crude in Aug, which accounts for more than 25% of its total oil imports at 99.3 million barrels.
  • Bilateral trade between South Korea and UAE reached AED 122.7bn from 2010 – 2015; this was disclosed at the meeting of the UAE- South Korea Joint Customs Committee.
  • Standard Chartered revealed that it had started direct trading between the Chinese yuan, Saudi Arabia’s riyal and the UAE’s dirham, making it one of the first market-makers to trade those currency pairs in China’s interbank market.
  • Construction at the Expo 2020 Dubai site formally commenced last week with the first of four infrastructure sections (collectively worth AED 1.3bn), which will be completed by Apr 2018; all infrastructure work is expected to be done by Oct 2019.
  • Passenger growth at the Abu Dhabi International airport grew by 2.3% yoy to 2.3mn persons in Aug, bringing the year-to-date number to 16.4mn (+6.2% yoy).
  • UAE was ranked 12th out of 45 markets globally by expats as a destination to live and work, according to HSBC’s Expat Explorer 2016 survey. Singapore, New Zealand and Canada were chosen as the top three markets globally. The UAE scored high on political stability (8 in 10 respondents select it for being more politically stable than their home countries), along with the safety and high quality of life for families. (The report can be accessed at: https://www.expatexplorer.hsbc.com/survey/files/pdfs/overall-reports/2016/HSBC_Expat_Explorer_2016_report.pdf)
  • International curriculum schools in Dubai generated around USD 1.5bn in revenue in 2015 – the largest globally, followed by Singapore (USD 881mn) and Abu Dhabi(USD 860mn). Abu Dhabi and Dubai also lead in student enrolment – by 18% and 16% respectively – between 2013 and 2016 in “premium” international schools, according to data disclosed at the International Private Schools Education Forum.
  • Analysing the energy and water consumption of 46 hotels in the UAE over a three year period (2013-2015), a study found that hotels with poor environmental policies consume three times more energy and 7.4 times more water than properties with better ‘green’ credentials. Hotels could cut costs by 20% by reducing energy and water usage.

Media Review
OPEC agrees its first production cut since 2008
Saudi Arabia’s Shock Therapy: Project Syndicate
Saudi foreign ministry condemns passage of U.S. Sept. 11 law
Asia is leading the way in the robotics revolution
Payment Solutions Account for 40% of FinTech Businesses in the GCC
The troubles of Deutsche Bank
Dubai Expo 2020 project: Progress so far
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