Weekly Insights 6 Sep 2024: Growth dependent on non-oil sector; promising gains in global trade despite transport disruptions

Weekly Insights 6 Sep 2024: Growth dependent on non-oil sector; promising gains in global trade despite transport disruptions

1. A mixed bag of Middle East PMIs in summer

• Some gains in Aug PMI: both Saudi Arabia and UAE posted the first increase in 6 months; EgyptPMI clocked in an expansion, for the first since Nov 2020.
• In contrast, Lebanon stayed in contraction territory and Kuwait fell to a sub-50 reading for the first time in over 1.5 years.
• Rise in consumer and business spending led to strong increase in new orders in the UAE (export orders rose the most since Oct 2023) and Saudi Arabia. Kuwait posted a marginal uptick in new orders alongside new export orders growing at a much faster pace.
• Saudi employment grew the most in a decade, and Qatar’s workforce growth rate was the second-highest on record. Meanwhile, job creation eased to a 7-month low in UAE. Wage costs were high across the board while in Qatar staff costs index touched a new high.
• Input cost pressures varied: input prices hit a 4-year high in Qatar, eased to the lowest since Jul 2023 in Saudi and to a 4-month low in the UAE (despite higher prices and wages). Discounting was still prevalent: output costs fell in Qatar and Saudi while it increased (albeit at a softer pace) in both UAE & Kuwait
• Egypt finally moved into expansionary territory after 44 consecutive months: not only did output grow for the first time in 3 years, but foreign sales were also higher, and employment rose. However, input price pressures accelerated to the most since Mar.
• Lebanon’s PMI, which usually posts a seasonal recovery in summer, saw reduced tourist demand in Aug (given the escalation in border conflict). New export orders contracted for the 9th month in a row and business confidence remained subdued.

2. Supply chain disruptions are ongoing, but global trade shows uptick; firms have become more experienced in managing shocks given the pandemic & previous geopolitical events

• Shipping costs are rising. freight rates via major shipping routes are much higher compared to the first week of 2023, though not yet close to crisis levels. Air freight rates are becoming more competitive – air cargo could be seen as a back-up option, especially if shipping rates go further north closer to the Q4 holiday season.
• Shipping containers are still re-routing most transit trade volume that would normally go through the Red Sea via the Cape of Good Hope. Data from the IMF’s PortWatch platform shows that, compared to a year ago, shipping volume (7-day moving average) via Suez Canal was down 70.3% yoy as of 27th Aug and down by 20% from end-Q1. This has meant higher operational costs and longer shipping times/ lengthening of supplier delivery times.
• In addition, the Red Sea attacks have led to reduced capacity, higher insurance costs (war risk premia increase to 0.6-1.0% vs“normal” of 0.05% a factor of 10) as well as a diversion to alternative modes of transport (e.g. using rail or air) among others.
• However, WTO’s latest goods trade barometer indicates an upturn in trade volume in Jul: 103 vs 100.6 at end-2023. A breakdown of components shows above-trend readings for both container shipping (104.3) and air freight (107.1). However, weaker new export orders and continued fall in electronic components could lead to a more uncertain future.

3. Qatar’s economic activity contracted in Q4 2023, dragged down by mining & quarrying sector but alongside robust non-hydrocarbon sector performance

• Qatar’s real GDP shrank by 0.6% qoq and 0.04% yoy to QAR 176.78bn in Q4 2023 (Q3 2023: 1.5% yoy), largely owing to the decline in hydrocarbon sector activity (-5.6% qoq and -3.1% yoy).
• Non-hydrocarbon sector continued to grow steadily, rising by 2.4% qoq and 1.7% yoy to QAR 114.6bn. A further breakdown by sector showed the fastest upticks in accommodation & food services activities (10.2% yoy in Q4), followed by agriculture, forestry & fishing (7.7% yoy) and arts, entertainment & recreation (6.4%). For the full year 2023, hospitality and logistics sectors topped growth.
• A percentage distribution of GDP by economic activity shows mining & quarrying sector accounting for 35.2% of overall GDP in Q4 2023, followed by construction (10.5%), financial & insurance activities (9.3%), wholesale & retail trade (9.1%) and manufacturing (7.9%).
• The expansion of Qatar’s LNG capacity (and related, long-term alliances) will support its near- and medium-term growth, while the initiatives within the Third National Development Strategy, if implemented effectively, could significantly boost non-oil sector activity (e.g. diversification & growth clusters, reforms to improve investment climate).

4. Qatar’s domestic deposit growth outpaces credit; tourists from GCC dominate inflow

• Latest monetary statistics data released by the Qatar central bank showed that total assets of commercial banks grew by 6.4% yoy to QAR 2trn in July. Money supply growth was healthy: M2 and M3 were up by 6.4% and 11.3% respectively.
• Total deposits grew by 11.3% yoy to QAR 1.03trn in Jul, with domestic deposits accounting for the major share (80.7%). Domestic deposits were up by 11.4% in Jul and grew by an average 8.3% in Jan-Jul, with public sector deposits accounting for 44% of the total. Public sector deposits grew by +21.4% yoy to QAR 366.2bn while private sector deposits were up by 4.6% yoy to QAR 466.9bn.
• Domestic credit increased at a much slower pace compared to domestic deposits. The former was up by 7.3% yoy in Jul, with claims to the private and public sectors up by 6.9% (to QAR 884.1bn) and 12.8% (to QAR 112.4bn) respectively.
• Tourism continues to rise, with July alone seeing an inflow of 317.5k tourists (+0.4% mom and 10.2% yoy), taking the total to 2.95mn visitors in Jan-Jul 2024 (Qatar had clocked in a record-high 4mn visitors in full year 2023, which was almost twice pre-pandemic levels). While visitors from the GCC account for 46.2% of the total, the upcoming unified GCC visa should further support tourism.

5. UAE’s Q2 credit sentiment survey indicates healthy demand; banks’ willingness for business lending is strong . Appetite to remain strong in Q3

• Loans disbursed to UAE’s business & industrial sector accounted for 47.5% of total domestic credit in May 2024. It grew by 3.2% yoy in May (& 3.6% year-to-date) versus a faster pace in the private retail sector (9.4% yoy and 5.6% ytd).
• UAE central bank’s Q2 2024 credit sentiment survey shows a strong credit demand. But domestic credit grew by 5.4% yoy in May 2024, slower than 6.5% and 6.1% in Apr and Mar respectively.
• Demand for business loans rose in Q2 2024: demand was strongest for GREs, followed by large firms. The largest growth rates were seen in construction, manufacturing, property development and retail & wholesale trade. Appetite to remain strong in Q3.
• While demand for personal loans was strong, financing conditions for personal lending have become less favourable. There was also a moderate increase in premiums charged on riskier loans. Credit card, personal loans and housing loans (owner-occupier) showed the largest increase in lending appetite.

Powered by: