Weekly Insights 25 Oct 2024: Resilient global growth amid uncertainties & rising debt

25 October, 2024
read 6 minutes
IMF’s global growth, inflation & debt forecasts. MENA growth. Oman GDP. Saudi foreign trade. GCC US Treasuries holdings. 
Download a PDF copy of this week’s insight piece here.

 

Weekly Insights 25 Oct 2024: Resilient global growth amid uncertainties & rising debt

1. World economy is projected to grow by 3.2% in 2024 & 2025: IMF

  • Global economic growth is projected to remain resilient, rising by 3.2% in 2024 and 2025 (2023: 3.3%). Growth in emerging market economies (EMEs) will accelerate to 4.2% in 2024 and 2025, given gains in Middle East & North Africa and Sub-Saharan Africa.
  • Growth in Emerging Asia is estimated to moderate (2024: 5.3% & 2025: 5.0%), as growth slows in India (2024: 7.0% & 2025: 6.5%) and China (2024: 4.8% & 2025: 4.5%).
  • Global inflation is estimated to decline to 5.8% in 2024 (2023: 6.7%) and 4.3% in 2025, though services inflation remains relatively high (almost double pre-pandemic levels). Major central banks have started to lower rates, which in turn will strengthen EME currencies and reduce imported inflation. EMEs inflation is projected to decline to 7.9% in 2024 and then at a faster pace in 2025 (to 5.9%).
  • Risks to IMF projections include widening of the current conflict in the Middle East (and for an extended period) which could potentially lead to higher oil prices (in case of supply disruptions), increased trade tensions (e.g. US-China, and growing protectionism), risks from a longer-than-expected recovery in China’s property sector and debt sustainability worries, among others.

2. MENA growth to edge up to 2.1% in 2024 (2025: 4.0%); inflation easing in 2025

  • The IMF forecasts economic growth in MENA to touch 2.1% this year, revised lower compared to the previous update, due to the ongoing conflicts in the region and oil production cuts.
  • Growth projection for 2025 assumes that the conflicts ease: oil exporters growth recovery (to 3.9% from 2.4% in 2024) results from the expiry of the oil production cuts; oil importers’ gain remains tied to how soon the conflicts are resolved/ related uncertainty eases. GCC growth improves to 4.2% in 2025 from 2024’s 1.2%, with non-oil sector growth the main driver (ranging between 3-4%).
  • Inflation has started to ease, partly due to monetary policy tightening and lower energy costs but remains elevated among oil importers. Country-specific reasons keep headline inflation high – for example in Egypt and Lebanon.
  • Current account balances in MENA remain in surplus in 2024-25 due to the high surpluses run by oil exporting nations (though it is narrowing as a % of GDP).
  • How the conflicts in Gaza & Lebanon pan out will determine growth rates in the region. In addition to the loss of lives and widespread displacement of population, there will be a negative on output, trade and tourism levels; furthermore, movements of displaced persons to neighbouring nations will leave an impact. Moreover, security risks in the Red Sea will have an impact on global trade: daily transit calls (7-day moving average) via the Suez Canal dropped by 65% yoy & 50% ytd as of mid-Oct.

3. Build-up of government debt & fiscal deficits is concerning

  • IMF’s Fiscal Monitor report highlighted that global public debt is very high: it will rise to USD 100trn, or 93% of GDP by end-2024, and approach 100% by 2030; in the severely adverse scenario, it could rise to 115% of GDP in 3 years.
  • China and US are the main countries driving the increase in debt: the report highlights that though these nations have higher debt tolerance, it could lead to significant spillovers in other economies (such as higher borrowing costs, debt-related risks).
  • Fiscal balances in the MENA region will move into deficits from this year (after a surplus 0.2% of GDP in 2023), with Saudi Arabia running large fiscal deficits (close to 3.0% in 2028-29). The rise in fiscal deficit also reflects the increase in interest expenses.
  • Public debt levels in the region have been rising for almost a decade: more than half the countries in the Arab region had higher than pre-pandemic debt to GDP levels in 2023. Among the GCC countries, Bahrain’s public debt as share of GDP is the highest (100%+).

4. Oman’s real GDP grew by 2.8% yoy in Q2 2024 & 1.9% yoy in H1 2024, boosted by a strong non-oil sector (+4.7% in Q2 & +4.2% in H1)

  • Oman’s real GDP grew by 2.8% yoy to OMR 3.0bn in Q2 2024: total petroleum activities (which accounted for 32.5% of GDP) fell by 2.6% yoy while the non-oil sector activity gained 4.7% (industry & services activities increased by 6.4% and 3.9% respectively).
  • A sector breakdown shows that manufacturing and construction (both within the industry sector) together accounted for 17.7% of overall GDP in Q2. Within services, trade and logistics dominated (14.3% of total GDP).
  • Among services, wholesale & retail trade grew at the fastest pace (9.0% yoy in Q2), followed by transportation & storage (7.7%) while accommodation & food services activities posted a massive 12.8% decline.
  • GDP grew by 1.9% yoy in H1 2024: during this period, non-oil sector grew by 4.2% compared to oil sector’s 2.5% decline; among the services sector, trade and logistics grew the fastest (7.5%) while accommodation & food services plummeted (-17.0%).

5. Plunge in oil exports (lowest since mid-2021) in Aug drags down overall exports in Saudi Arabia

  • Saudi Arabia’s exports plunged by 1.9% mom and 9.8% yoy to SAR 92.8bn in Aug, dragged down by oil exports (which accounted for 70.3% of total exports).
  • Oil exports, at SAR 65.3bn in Aug (-5.6% mom and 15.5% yoy), were the lowest since mid-2021. Non-oil and re-exports together grew by 8.2% mom and 7.5% yoy to SAR 27.5bn in Aug.
  • Year-to-date, total exports are down by 4.3%, dragged down by oil exports (-9.4%). Non-oil & re-exports are up 7.8% and 16.6% respectively.
  • Imports also fell by 16.3% mom and 3.9% yoy to SAR 64.8bn in Aug, thereby widening trade surplus to SAR 28.0bn (vs Jul: SAR 17.2bn; Aug 2023: SAR 35.4bn).
  • Oil exports to top 5 destinations (China, South Korea, Japan, India & US) stood at 59.5% of total oil exports in Aug. Share of top 25 nations was 94.4% (Bahrain, UAE & Oman were among top 15 destinations).
  • China was the top trade partner in Aug: accounting for 16% of overall exports and 22.2% of total imports.
  • As always, Asian non-Arab non-Islamic nations received the largest share of exports from Saudi Arabia (51.1%). Not surprising, considering that 4 of the top 5 oil export destinations are from this region.

6. US Treasuries holdings of UAE & Saudi Arabia in Aug 2024 are the highest since Mar 2020 and Mar 2015 respectively

  • Foreign holdings of Treasuries posted a new peak of USD 8.503trn in Aug (Jul: USD 8.34trn).
  • Japan, the largest foreign holder of US Treasuries, increased its holdings to USD 1.129trn.
  • China, second on the list, reduced its holdings for a second month to USD 767.4bn, the smallest since Jan 2010 (end-2023: USD 816.3bn).
  • Saudi Arabia continues as the 17th largest investor in US Treasuries, recording USD 142.8bn in Aug – highest since Mar 2020.
  • UAE sharply increased its holdings in Aug, up 14.8% mom and 16% yoy to USD 79.157bn – this is the highest since Mar 2015.
  • GCC nations have been increasing their holdings of US Treasuries this year. Compared to end-2023, Kuwait increased their holdings (by 2.3%) alongside Saudi Arabia and UAE whose holdings grew by 8.2% and 23.7% respectively.

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