Weekly Economic Commentary – Mar 3, 2019

3 March, 2019
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Global equities ended on a positive note last week as growing hopes for a China-US trade deal (Trump delayed the planned tariff hikes and an agreement could be signed as soon as mid-Mar, reported Bloomberg) outweighed weak economic data. The S&P 500, which registered its highest close since Nov 8, also reported its best annual start since 1991. Chinese equity markets surged on MSCI raising the country’s weighting in its emerging markets index. A mixed picture in regional markets, with weakness in the real estate sector dampening UAE markets by Thurs, while Saudi has witnessed a strong start to 2019 so far. The dollar hit a 10-week high against the yen, while oil prices retreated towards end of last week and the gold price declined compared to a week ago.
Global Developments

  • US GDP grew at 2.6% in Q4 2018, slowing after a 3.4% pickup in Q3, as a result of slower consumer spending (2.8% in Q4 vs. 3.5% in Q3). Full year GDP grew by 2.9% and compares to 2.2% in 2017.
  • Core PCE (personal consumption expenditures) index rose by 0.2% mom and 1.9% yoy in Dec, following a 0.2% mom reading the month before.
  • US personal income fell by 0.1% mom in Jan (Dec: +1.0%) – the first dip since Nov 2015 – weighed down by decreases in dividend, farm proprietors’ and interest income.
  • Consumer spending in the US dropped by 0.5% in Dec – the biggest decline since Sep 2009 – and follows a 0.6% rise in Nov.
  • ISM manufacturing PMI fell 2.4 points to 54.2 in Feb – the lowest reading since Nov 2016 – as new orders, production, employment and prices all posted declines.
  • Housing starts in the US tumbled by 11.2% mom to an annualized rate of 1.08mn in Dec 2018. Housing completions fell 2.7% to 1.097 million units, the fewest since Sep 2017, also pointing to a sluggish housing market.
  • Building permits rose 0.3% to a rate of 1.326mn units in Dec, supported by the volatile multi-family homes permits. Single-family homebuilding (the largest share of the housing market) dropped 6.7% to a rate of 758k units – the lowest since Aug 2016. Pending home sales rebounded in Jan, rising by 4.6%. 
  • S&P Case-Shiller home price index posted a 4.2% yoy increase in house prices in the 20-metro area in Dec, the smallest gain since Nov 2014, after rising 4.6% in Nov.
  • Factory orders in the US fell to a 2-year low, dropping by 0.6% in Nov after an unrevised 2.1% dip in Oct, given sharp declines in demand for machinery and electrical equipment.
  • Initial jobless claims increased by 8k to 225k for the week ended Feb 23 and the number of people on continuing claims increased to a 10-month high. The four-week moving average of initial claims fell 7k to 229k.


  • EU unemployment rate touched the lowest in nearly two decades, with the Jan reading at 6.5%, down from Dec’s 6.6%. Youth unemployment rate was 14.9% across the EU in Jan. Germany’s jobless total decreased by 21k to 2.236mn in Feb, while the unemployment rate remained unchanged at 5% – the lowest since 1990.
  • German inflation remained unchanged in Feb, at 1.7% yoy, below the ECB’s target level for the third consecutive month.
  • German retail sales increased by 3.3% mom in Jan, recording the strongest rise since Oct 2016.

Asia Pacific:

  • China’s official NBS manufacturing PMI slipped to 49.2 in Feb (Jan: 49.5), the weakest since Feb 2016. Output shrank for the first time since Jan 2009 while export sales fell for the ninth straight month.
  • The Caixin manufacturing PMI increased to 49.9 in Feb from a near 3-year low of 48.3 in Jan, as output and new orders expanded slightly, but overall remained below the 50-mark for the third consecutive month.
  • India’s GDP slowed to a 5-quarter low of 6.6% in Oct-Dec of the current fiscal year 2018-19, down from 7% in the previous quarter and from 8% a year ago, on slower consumer spending (8.4% vs 9.9% the previous quarter).
  • Singapore inflation eased to 0.4% yoy in Jan (Dec: 0.5%),as core inflation dipped to 1.7% (Dec: 1.9%).
  • Industrial production in Singapore posted the first contraction since Dec 2017, with the Jan reading at -3.1% yoy (Dec: 1.7%) mainly due to dips in electronics (-13.7%) and precision engineering (-15.7%).
  • Japan industrial output fell 3.7% mom in Jan – the third monthly decline and the largest fall in a year – as output of electronic parts and devices dropped 8.4% and auto production dipped 8.6%. The ministry of economy trade and industry cut its assessment of activity to say it was “stalling”.
  • Japan’s retail sales grew 0.6% yoy in Jan, down from Dec’s 1.3%.

Bottom line:March is going to be a crucial month: need to wait and watch if the latest set of weak economic data released across the globe, dampened by the lack of a China-US deal, will change in the coming weeks; another upcoming deadline this month is Brexit. Reading the US GDP data alongside other macro indicators point towards the unsustainable push from the tax cuts whereas India’s weaker-than-expected GDP number might be used to justify rate cuts ahead of the elections. On the horizon also are policy statements/ decisions from key central banks including the ECB and the announcements from China’s National People’s Congress.
Regional Developments

  • Bahrain approved a draft budget for 2019-2020, and plans to reduce the deficit down to USD 1.63bn by 2020. According to the plan, operational expenditure will be reduced by 17% yoy. It remains unclear whether the revenues – forecast at BHD 2.745bn in 2019 and BHD 2.874bn in 2020 – include funds from the 5-year aid package from the UAE, Saudi Arabia and Kuwait.
  • Bahrain’s cabinet approved hikes in fees imposed on foreign labour licenses under a job nationalisation programme to BHD 500 from BHD 200 currently. The National Employment Programme launchedto increase hiring of Bahraini citizensin the private sector also features increasing the allowance given to unemployed citizens, as well as launching an awareness campaign.
  • Bahrain’s central bank has become the first in the region to issue rules on regulating crypto assets. This includes new supervision and enforcement standards in addition to rules on licensing, governance, risk management, AML/CFT measures, business conduct, conflict of interest avoidance, reporting and cybersecurity. Currently, 8 of the 28 companies that have access to the CBB regulatory sandbox are crypto-related.
  • Bahrain is the most cost-effective place to set up and conduct a business in the financial services sector, according to KPMG. Thanks to lower commercial rents (four times less) and about 60% less staff costs, companies would save about 35% in overall costs vis-à-vis the rest of the region. More: https://home.kpmg/bh/en/home/insights/2018/06/cost-of-doing-business-in-bahrain—financial-services.html
  • Fitch affirmed Bahrain’s Long-Term Foreign-Currency Issuer Default Rating at “BB-” with a stable outlook, thanks to the financial backing from its Gulf counterparts, the strong financial sector and high GDP per capita.
  • Egypt is finalising an SME draft law– which includes definitions of SMEs, provision of a single-window system, tax incentives and training programs – and expects to present it to the parliament this week.
  • According to Egypt’s energy minister, Saudi Aramco agreed to deliver more than 500k barrels of crude oil every month to Egyptian refineries for a 6-month period till Jun.
  • Egypt and Lebanon have discussed the possibility of providing the latter with LNG, to fix the electricity sector. This is in line with the current gas exports to Jordan to meet its electricity needs – the amount was increased to 350m cubic feet per day (scf/day) from 100m scf/day in Jan.
  • Crude oil exports from Iraq’s southern ports stood at 3.565mn barrels per day (bpd) as of 25 Feb, and compares to 3.556mn bpd in Jan and Dec’s record high of 3.63mn bpd.
  • Several commitments were announced to support Jordan’s economy and attract foreign investment (at the London conference) including: UK stated it would underwrite a USD 250mn World Bank loan; France’s would provide funds to the tune of USD 1bn over the period of 2019-2022; a EUR 65mn agreement was signed with the European Investment Bank to fund projects aimed at improving potable water services and sewage.
  • CEDRE donors have not imposed a deadline for implementation of reforms in Lebanon, clarified the French envoy tasked with following up on the summit. He also stated that so far “none have indicated that they will withdraw funds”.
  • Lebanon’s Beirut international airport saw a 7.37% yoy increase in passenger traffic last year, bringing the total number to 8.8mn passengers.
  • Expat population in Oman declined to 2.04mn as of 25 Feb this year – the lowest since Jul 2015 – and accounting for 43.7% of total population in the country.
  • Following the implementation of a visa ban in Oman since end-Jan 2018, about 64,386 Omanis were employed in private sector firms and 4,125 more in government agencies.
  • Qatar Investment Authority plans to buy a stake of at least 5% in Deutsche Bank from either the open market or Chinese conglomerate HNA, reported the German magazine Der Spiegel.
  • Saudi Arabia’s Tadawul expects to receive passive fund inflows of USD 15-20bn this year as it is included in multiple emerging market benchmarks. The market has already attracted more than USD1.5bn from foreign investors since the beginning of this year.
  • Saudi Arabia plans to finalise by Q2 this year regulations allowing for cross-listing, given the growing requests and appetite from companies in the region.
  • A series of structural changes were announced to Saudi Arabia’s parallel market for SMEs Nomu: to be implemented this quarter, changes include (among others) provisions to allow direct listings on Nomu Parallel Market without an IPO as well as streamlining the process for issuers to transition to the Main Market and reducing normal trade threshold.
  • Unemployment in Saudi Arabia edged down to 12.8% in Q3 2018, from 12.9% in the two previous quarters. Female labour force participation picked up to 19.7% from 17.8% in the same period a year ago. Around 265k expats left the market during the quarter bringing the expat labour down by 1.4mn since start of 2017.
  • The value of oil exports from Saudi Arabia increased by 12.7% yoy to SAR 69.97bn in Dec; non-oil exports picked up by 11.8% to SAR 21.05bn.
  • Saudi Arabian exports of crude oil to China are expected to riseto about 1.5mn barrels per day in Q1 2019, driven by growing demand from new and independent Chinese refiners, reported Reuters.
  • Saudi Arabia aims to export 3bn cubic feet per day of gas before 2030, from conventional and non-conventional resources, according to Aramco’s CEO.
  • Expatriates hold 60,386 public sector jobs in Saudi Arabia, of which 71.9% are held in the healthcare sector.
  • The contribution of Saudi Arabia’s smart cities projects to GDP is expected to reach over USD 2bn annually by 2030, according to the country’s communications minister.
  • The entertainment sector in Saudi Arabia has the potential to create 200k+ new jobs by 2030 and could generate revenues worth SAR 30bn (USD 8bn), disclosed the CEO of the General Entertainment Authority.
  • Saudi Arabia announced the creation of a new visa category, a one-off “event” visas to attend sporting, entertainment and business attractions, and these can be issued within 24 hours of receiving the request.
  • Sovereign borrowing in the MENA region is set to increase by 20% this year, estimates S&P. Long-term borrowing is forecast to touch USD 136bn this year, with about 44% of the borrowing going toward refinancing maturing long-term debt.

UAE Focus

  • Bank lending in the UAE increased by 5% yoy to AED 1.662trn in Jan 2019: loans to the private sector rose 4% to AED 1.134trn and public sector loans grew 9% to AED 193bn.
  • UAE’s vice-president announced, via Twitter, a AED 32bn (USD 8.7bn) housing plan to build 34k units for citizens within the next 6 years.
  • Fuel prices for March were revised upwards, with petrol prices up between 4.35%-4.62% while diesel price was up by 5.7%.
  • Dubai announced an ambitious plan to install solar panels in 10% of Emirati homes before end-2019and connect them to a grid to improve energy efficiency. The implementation cost will be bourne by Dubai Electricity and Water Authority.
  • Dubai welcomed around 15.92 million tourists last year, up 0.8% yoy; Indian, Saudi, and UK tourists topped the list of visitors last year recording 2.03mn, 1.6mn, and 1.2mn respectively.
  • Abu Dhabi welcomed 10.27mn international visitors into the emirate in 2018 and hotel guests were up by 3.94%.
  • A PwC-Dubai Chamber of Commerce and Industry survey revealed that Dubai’s private sector has maintained continuous growth in its innovation score, increasing by 4.7% from 2017 to 2018, following a 1.2% increase the year before. Two interesting results were that more companies are now seeing customers as a source of new innovative ideas and also understanding the importance of introducing new value offerings (e.g. moving from a product to as services model) and enhancing customer experience. (More details: http://www.dubaichamber.com/uploads/pdf/DII2018Report.pdf)

Media Review
Saudi Aramco faces key test of demand in global debt markets
 Bahrain bailout tied to “general assessment” of rebalancing, not specific numbers
 Scaling Up SME Financial Inclusion in the Middle East and Central Asia
 Poverty Reduction Rests on Trade
 Bumpy Road for EVs
 AI key to beating corruption
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