Weekly Economic Commentary – Aug 26, 2024

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Markets

Equities markets were once again upbeat, ending on a high note towards the end of last week after Fed Chair Powell indicated that interest rate cuts are on the horizon: S&P 500 was close to an all-time high alongside gains in Asia ex-Japan and the MSCI all world index. Regional markets mostly posted gains, supported by expectations of a Fed cut (with similar cuts in GCC markets given the dollar peg) though Qatar and Oman markets ended lower on losses in financial & real estate sectors. The dollar index weakened last week on lower rates outlook, enabling GBP to rise to its highest in more than 2 years (thanks also to positive data such as the UK PMI), and the EUR to touch a 13-month high. Oil prices ended lower compared to a week ago (though it climbed over 2% on Fri after Powell’s comments) while gold price jumped to a new record-high (given geopolitical turmoil, upcoming US elections and strong demand from central banks).

Global Developments

US/Americas:

• FOMC minutes showed that “the vast majority” signalled a potential interest rate cut in Sep, “if the data continued to come in about as expected”. Further, during the Jackson Hole symposium,Powell indicated that rate cuts were on the horizon given a cooling labour market and inflation closing in on the central bank’s 2% annual target, a potential soft landing.
• S&P Global US manufacturing PMI eased further to 48 in Aug (Jul: 49.6). Services PMI rose by 0.2 points to 55.2.
• Kansas Fed manufacturing activity rebounded to 6 in Aug (Jul: -12), the highest in a year, with volume of new orders staying negative (-12) alongside a steady reading for capital expenditures. Chicago Fed national activity index plunged to -0.34 in Jul (Jun: -0.09), dragged down to production-related indicators (contribution of -0.28 from Jun’s -0.02).
• Existing home sales in the US unexpectedly grew by 1.3% mom to 3.95mn in Jul; existing home price grew by 4.2% yoy to USD 422,600. New home sales surged by 10.6% mom to 739k in Jul, the highest since May 2023, thanks to the jump in single-family homes. The 30-year fixed rate mortgage slipped to 6.46%, almost a 15-month low, leading to higher demand.
• Initial jobless claims increased by 4k to 232k in the week ended Aug 16, taking the 4-week average down by 750 to 236k. Continuing jobless claims rose by 4k to 1.863mn in the week ended Aug 9.

Europe:

• Current account surplus in the euro area widened to EUR 51bn in Jun (May: EUR 38bn), thanks to surpluses across goods (EUR 39bn), primary income (EUR 14bn) and services (EUR 12bn) while recording a deficit for secondary income (EUR 14bn).
• Eurozone’s preliminary manufacturing PMI slipped to an 8-month low of 45.6 in Aug (Jul: 45.8), with new orders declining the most since last year, employment falling and input cost inflation at an 18-month high. Services PMI ticked up (53.3 from 51.9), supported partly by the Olympics held in France, and composite PMI moved up by 1 point to 51.2 (the 6th consecutive expansion this year).
• Consumer confidence in the eurozone slipped further to -13.4 in Aug (Jul: -13). Sentiment in the EU slipped by 0.1 point to -12.3.
• Flash manufacturing PMI in Germany fell to 42.1 in Aug (Jul: 43.2), remaining under-50 since Jul 2022. Though services PMI also declined (51.4 from 52.5), it was supported by an increase in consumption driven by higher wages. Composite PMI slipped to 48.5 (Jul: 49.1).
• German producer price index fell by 0.8% yoy in Jul (Jun: -1.6%), recording deflation for the13th month in a row, as energy prices fell (-4.1%) while prices of durable consumer goods ticked up by 0.7%. Prices inched up by 0.2% month-on-month following a similar gain in Jun.
• UK’s manufacturing and services PMI inched up by 0.4 and 0.8 points to 52.5 and 53.3 respectively in Aug. UK’s increase in manufacturing stands in contrast to Eurozone members and was sustained by new orders (and despite lower demand from abroad) and a fall in input cost inflation (to the lowest in nearly 4 years). Composite PMI stood at 53.4 in Aug (Jul: 52.8).
• GfK consumer confidence in the UK remained unchanged at -13 in Aug – this is the highest level since Sep 2021. While the index on personal finances improved, overall sentiment on the economy stayed negative.

Asia Pacific:

• FDI into China declined by 29.6% yoy in Jan-Jul (H1 2024: -29.1%), despite an 11.4% increase in new foreign firms established in the country to 31,654 this year. Separately, at an executive meeting of the State Council, China decided to open its telecom, education and healthcare sectors to foreign investors in addition to abolishing entry barriers in the manufacturing sector.
• The People’s Bank of China (PBoC) left the one-year and five-year Loan Prime Rates unchanged at 3.35% and 3.85% respectively.
• Inflation in Japan remained unchanged at 2.8% yoy in Jul. Excluding food and energy, prices eased to 1.9% (Jun: 2.2%) – falling below the 2% mark for the first time since Sep 2022. Excluding fresh food, prices ticked up to 2.7% (Jun: 2.6%).
• Flash manufacturing PMI in Japan inched up to 49.5 in Aug (Jul: 49.1) even though orders (domestic and foreign) declined, and input prices rose at the fastest pace since Apr 2023. Services PMI moved to 54 from 53.7 the month before, expanding for the seventh month this year, though 12-month ahead outlook was dragged down by labour constraints (& costs).
• Exports from Japan grew for the eighth month in a row, up by 10.3% yoy in Jul, though volumes were down by 5.2% yoy. Imports increased at a faster pace (+16.6% to a 19-month high), moving trade balance into a deficit of JPY 621.8bn (the fifth deficit reading so far this year). Exports to China grew by 7.2% yoy in Jul (thanks to strong demand for chip-making equipment) while exports to the US was up 7.3%.
• Bank of Korea left interest rates unchanged at 3.5% for the 13th meeting in a row in a bid to rein in persistent inflation. The apex bank lowered its growth and inflation forecasts this year to 2.4% (from an estimated 2.5% in May) and 2.5% (from 2.6%) respectively. The BoK also signalled a potential move to easing in the coming months.
• Preliminary manufacturing PMI in India eased to 57.9 in Aug (Jul: 58.1), thanks to growth in new orders and export orders while output price inflation reached an 11-year high. Meanwhile, services PMI ticked up (60.4 from 60.3), expanding for the 37th month in a row.
• Inflation in Singapore stayed unchanged at 2.4% in Jul while core inflation clocked in at 2.5% (Jun: 2.9%), the lowest since Feb 2022. Services inflation slipped to 2.9% in Jul (Jun: 3.4%) while accommodation and food costs edged down to 3.1% and 2.7% respectively (from 3.3% and 2.8%).

Bottom line: Flash PMI data continued the story of a stronger services sector alongside weaker manufacturing activity. The Summer Olympics seems to have given a temporary boost to France’s services sector in Aug, while the UK readings were generally upbeat with data also showing a sharp moderation in inflationary pressures in the services sector (an area the Bank of England was focusing on). Asian manufacturing PMI were more promising with Japan’s at a 15-month high & India’s above the long-run historical average (54). Separately, central banks were on focus last week: Powell saying that “time has come” for rate cuts have markets pricing in a rate cut as early as the Sep meeting. The ECB sounded more cautious in its approach (the Chief Economist stated that the goal of inflation at 2% is “not yet secure”) while the BoE stated it was “cautiously optimistic” about inflation but also that it was “too early to declare victory”.

Regional Developments

• Non-oil exports of Bahrain origin grew by 4% yoy to BHD 337mn in Jul, with the top destinations Saudi Arabia, US and UAE. Non-oil re-exports increased by 22% to reach BHD 61mn while non-oil imports rose to 5% to BHD 464mn (China, Australia and Brazil were the top source nations). Deficit narrowed to BHD 66mn in Jul from BHD 68mn a year ago.
• External debt service in Egypt rose to USD 23.8bn in the 9-month period Jul 2023-Mar 2024 versus USD 17.8bn during the same period a year ago. Total external debt touched USD 160.6bn at end-Mar 2024 (down by USD 1.4bn vs end-Jun 2023).
• Egypt raised household electricity prices by between 14.5% to 50% – this is applicable to prepaid meters (from Aug 17th) and to regular meters (from Oct 1st).
• Total exports from Egypt grew to USD 24.097bn in Jan-Jul 2024, according to the Chairperson of the General Organization for Export and Import Control. Arab countries, EU and the US were the top destinations for Egypt’s exports.
• Credit facilities for productive sectors initiative in Egypt increased to EGP 67.48bn until Jun 2024: with 96% of total facilities directed towards capital financing, 78% of funding went towards the industrial sector.
• Egypt and the EU signed a EUR 8mn agreement to support the industrial sector in Egypt via improving its capacity and efficiency alongside increasing SME participation in selected value chains.
• Financial inclusion in Egypt increased to 71.5% of citizens aged 16+ as of Jun 2024 from 70.7% at end-2023. About 48.1mn persons were financially included as of 2024, from just 17.1mn in 2016. Around 20.8mn women were financially included, up 252% from 2016.
• Iraq and Kazakhstan plan to counter their overproduction of crude by Sep 2025. In Jan-Jul, cumulative overproduction was 1.4mn barrels per day (bpd) and 699k bpd in Iran and Kazakhstan respectively.
• Inflation in Kuwait inched up to 3% yoy in Jul (Jun: 2.84%, the lowest since Nov 2020), as prices inched up in food & beverages (5.89% from Jun’s 5.6%), clothing & footwear (5.63% from 5.58%) and recreation & culture (2.35% from 2.04%) among others.
• Kuwait Finance House sold its stake in Sharjah Islamic Bank for AED 1.3bn (USD 351mn) in an off-market sale, according to a filing on Borsa Kuwait.
• Lebanon’s acting central bank governor disclosed that the apex bank is working to prevent being placed on the FATF grey list. It had received low scores on its anti-money laundering measures and transparency on beneficial ownership of firms among others.
• Oman’s budget surplus narrowed to OMR 391mnas of end-Jun, almost half the surplus in H1 2023, as revenues fell by 2.3% yoy alongside a 2.1% uptick in spending. Public revenues fell by 2.3% yoy to OMR 6.197bn as of Jun 2024: net oil revenues inched up by 3.2% to OMR 3.4bn while net gas revenues plunged by 15.4% to OMR 943mn. Net oil and gas accounted for 69.5% of revenues. Repayment of public debt led to its decline to OMR 14.4bn as of end-Q2 (vs OMR 15.3bn in 2023 and OMR 20.8 in 2021).
• Trade surplus in Oman widened to OMR 2.989bn in Jan-May 2024, from OMR 2.986bn a year ago, as exports grew by 5% (to OMR 9.689bn) alongside a 7% uptick in imports (to OMR 6.7bn). During the period, non-oil exports grew by 11.2% (to OMR 3.045bn) while non-oil re-exports were up by 8.1% (to OMR 707mn); UAE was the largest market for Oman’s non-oil exports and re-exports. 
• Oman’s oil exports inched up by 0.05% yoy to 179.36mn barrels per day (bpd) in Jul, while the average oil price dropped to USD 83.9 per barrel (down by 4.1% from Jun’s USD 89.3 a barrel). China, Japan and South Korea were the top destinations of Omani oil – at 17.17mn bpd, 3.4mn and 2.5mn respectively.
• The Oman Investment Fund, in its Annual Report, disclosed that its assets grew by 12% yoy to OMR 19.2bn in 2023 (2022: OMR 17.2bn) and that its profits crossed OMR 1.7bn. The fund also repaid OMR 300mn of debt owed by its companies.
• The Qatar Financial Centre saw 505 new firms registered on its platform in H1 2024, up 230% yoy, with tech sector accounting for the largest share of businesses (38%).
• Qatar’s Ministry of Commerce and Industry lowered its licensing fees for home businesses to QAR 300 (from QAR 1500), also simplifying procedures to support entrepreneurship and local investments.
• Qatar Airways acquired a 25% stake in South Africa-based regional airline Airlink: though financial details were not disclosed, the move would require regulatory approval. This move will allow Qatar Airways access to passengers in regional cities in Africa.

Saudi Arabia Focus

• Saudi Arabia’s exports declined by 16.4% month-on-month and 5.8% yoy to SAR 87.9bn in Jun, the lowest since Jun 2021. Oil exports fell by 12.6% mom and 9.3% yoy to SAR 66.3bn – lowest since Aug 2021. Oil exports accounted for 75.4% of total exports in Jun. Imports fell by 22.5% mom and 5.1% yoy to SAR 57.7bn in Jun, thereby narrowing trade surplus to SAR 30.2bn (vs May: SAR 30.8bn; Jun 2023: SAR 32.5bn).
• About 184 firms have moved their regional headquarters to Saudi Arabia in H1 2024, disclosed the Ministry of Investment of Saudi Arabia, with about 57 companies joining in Q2. Investment licenses issued during H1 jumped by 49.6% to 2728 while the ministry also received 4,709 applications for an ‘Investor Visit’ visas.
• The Ministry of Economy and Planning’s Private Sector Business Cycle Composite Index for Saudi Arabia (MEPX) continued to expand in Q2 2024, thanks to a strong performance of consumer-related indicators, and is expected to stabilise until end-2024.
• PIF assets under management has grown overtime(SAR 2.9trn in 2023 vs less than SAR 2trn in 2021 and SAR 563bn in 2015), with an 8.7% shareholders’ return was generated by end-23. Domestic investments are on the rise, accounting for 76% of total AUM in 2023. Saudi sector development & equity holdings share was more than 3/4-th of local investments (and 32.8% & 27.1% of overall AUM). Saudi gigaprojects stood at 8.4% of overall AUM.
• Arabian Mills for Food Products Company (Arabian Mills) will sell 15.4mn shares, or 30% of its share capital, on the Saudi stock exchange. The book-building process is expected to be completed on Sep 11 while the retail subscription will run from Sep 18-19.
• Investment licenses issued in Saudi education sector surged by 86% yoy in Q2, with 41 new permits issued: this compares to 112 licenses in the sector at end-2023.
• Sukuk issuances in Saudi Arabia grew by 87.22% mom to SAR 6.018bn (USD 1.6bn) in Aug, according to the National Debt Management Centre. This was the third highest this year.
• SAMA data showed that credit facilities provided by Saudi finance companies grew by 12% yoy to SAR 88.6bn (USD 23.62bn) in Q1 2024. Personal finance accounted for 28% of the total (+23% yoy to SAR 25.12bn) while credit for residential real estate stood at 26% (+1% to SAR 22.91bn).
• Crude exports from Saudi Arabia grew by 12% yoy to 1.37mn barrels per day (bpd) in Jun, according to the Joint Organizations Data Initiative. Domestic demand for petroleum products in Saudi Arabia also rose by 391k bpd to 2.75mn bpd.
• Credit and insurance facilities by the Saudi Export-Import Bank surged by 128% yoy to SAR 16.31bn in H1 2024. By end-Jun 2024, Export financing disbursements reached SAR 7.03bn (142% yoy) while export credit insurance coverage jumped 118% yoy to SAR 9.28bn.
• Saudi-listed insurers Liva and Malath Cooperative Insurance signed a non-binding agreement for merger talks. The agreement is binding for 12 months or at the date of execution of a merger agreement.
• Saudi Minister of Transport and Logistics Services disclosed that the USD 22.5bn Riyadh Metro project would open this year: the Metro will be able to transport 1.2m passengers a day in its first phase, and potentially 3.6m passengers when all 6 lines (and 84 metro stations) are completed.
• Bloomberg reported that Saudi PIF was in talks to procure jets for a new cargo airline to support both Saudia and Riyadh Air.
• NEOM is set to receive a fleet of eight zero-emission electric passenger ships (Swedish Candela P-12 electric hydrofoil passenger ships) by the beginning of 2025. The Candela P-12 ships, to debut in Stockholm public transport sector this year, consume 80% less energy than traditional ships.
• National Shipping Company of Saudi Arabia (Bahri) announced a SAR 3.75bn (USD 1bn) deal to buy nine tankers from Greek company Capital Maritime and Trading Corporation: the very large crude carriers (VLCCs), to be delivered by end-Q1 2025, will deliver crude cargoes for Bahri’s customers.

UAE Focus

• Non-oil foreign trade in the UAE grew by 11.2% yoy to a record high AED 1.4trn in H1 2024, supported by a 25% surge in non-oil exports. UAE’s multiple Comprehensive Economic Partnership Agreements (CEPAs) have supported this uptick in exports. Non-oil exports with its top 10 trade partners grew by 28.7% during the period, and Iraq, India and Turkey were the top destinations for UAE exports. Re-exports grew by 2.7% yoy to AED 345.1bn while non-oil imports were up by 11.3% to AED 800bn.
• There was a 23.8% yoy increase in the number of certificates of origin issued in Jan-May 2024, according to a report by the Abu Dhabi Chamber of Commerce and Industry and Etihad Credit Insurance. There was a rise in the number of new industrial companies during the period while the transportation and storage sector posted a 78% yoy surge.
• Dubai firms have invested USD 1.4bn in China during the period 2015-2023, disclosed the CEO of Dubai Chambers. There are currently 5400 active Chinese firms registered with the Dubai Chamber of Commerce as of end-H1 2024, of which 742 joined this year (12% yoy).
• The number of Emiratis working in the private sector touched 113k by end-Jul, with 81k Emiratis having joined after the Emirati Talent Competitiveness Council was launched in Sep 2021. The number stood at 100k as of May 26th.
• UAE airports posted a 14% yoy increase in passenger traffic to nearly 72mn in H1 2024. This included 20mn arrivals, 21mn departures and 30mn transit passengers. Air cargo traffic reached 2.2mn tonnes during the period, with national carriers share standing at 68% of total.
• The Dubai World Trade Centre Authority reported a 19% yoy increase in the number of registered companies to 2,818 in H1 2024 at the free zone. The number of direct jobs in the free zone also grew by 5% yoy to 8,223 during the period.
• Cryptocurrency firm Tether disclosed that it was planning to launch a new stablecoin pegged to AED. Tether has stablecoins pegged to the EUR, CNY and to gold among others.

Media Review:

Central banks should raise the bar for intervention: Raghuram Rajan
https://www.ft.com/content/9dd2d4cd-a130-406c-82e4-4edfc1883b41

Airlines fly over Afghanistan as Middle East becomes the greater risk
https://www.reuters.com/business/aerospace-defense/airlines-fly-over-afghanistan-middle-east-becomes-greater-risk-2024-08-23/

Carbon Emissions from AI and Crypto Are Surging and Tax Policy Can Help 
https://www.imf.org/en/Blogs/Articles/2024/08/15/carbon-emissions-from-ai-and-crypto-are-surging-and-tax-policy-can-help

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