Weekly Insights 8 Nov 2024: Expansionary PMIs in the GCC & robust airlines performance despite regional conflicts

Weekly Insights 8 Nov 2024: Expansionary PMIs in the GCC & robust airlines performance despite regional conflicts

1. Diverging PMIs in the Middle East: expansionary & rising momentum in the GCC vs contractionary elsewhere

• Weak market conditions and impact from the ongoing conflict was evident in October PMIs for Lebanon and Egypt.
• Lebanon posted the lowest reading since Feb 2021, with sharp declines in new orders and new export orders. Though Egypt’s PMI edged up, it stayed contractionary: demand remained weak, especially in construction. Employment dropped in Lebanon but rose for the fourth month in a row in Egypt.
• UAE PMI gained thanks to increase in output levels while new orders softened. Interestingly, employment fell to a 30-month low in UAE while in Saudi it has been up for 6 months in a row. Saudi Arabia’s PMI benefitted from new orders and rise in sales, with domestic demand staying robust. Kuwait’s PMI grew 4 points thanks to growth in new orders and output.
• Input prices increased in most Middle East nations, except in UAE (where input cost inflation eased to a 6-month low) and Egypt (where inflation eased from Sep’s 6-month high). Input costs stood at a 19-month high in Lebanon; wages were the strongest pressure on prices in Qatar (most since Jul 2020); higher material costs and wages were the main drivers in Saudi Arabia.
• After opting to increase output charges for six months, UAE joined other nations in lowering prices charged in Oct. Output prices rose at the fastest rate in just over one and a half years in Lebanon.

2. Saudi budget deficit widened in Q3 2024, higher than deficit in H1 2024

• With Saudi fiscal deficit clocking in at SAR 30.2bn in Q3, overall deficit this year increased to SAR 57.96bn (vs SAR 44bn in Jan-Sep 2023). Recent projections placed full year deficit for 2024 at SAR 118bn.
• Overall revenues grew by 11.9% yoy to SAR 956.2bn in the period Jan-Sep 2024, with oil revenues fastest growing component, rising by 15.9% (to SAR 585.8bn) while non-oil revenues grew by 6.2% to SAR 370.5bn. Taxes accounted for 78.2% of non-oil revenues in Jan-Sep.
• Despite the rise in revenues, spending rose by 12.9% yoy to SAR 1.014trn in Jan-Sep. Capex posted one of the largest increases during the period, not surprising given the spending on infrastructure, up 33.4% to SAR 147.6bn. Compensation of employees, which accounted for 41% of total spending, gained the least – up by less than 5% to SAR 416.0bn.

3. UAE gross bank assets rise 6.8% ytd to AED 4.4trn in Jul; deposits surge 8.5% ytd

• UAE’s gross bank assets grew by 0.9% mom and 12% yoy to AED 4.348trn in Jul. Year-to-date, it grew by 6.8%.
• The central bank’s total assets surged by 1.4% mom to a new record-high AED 817.889bn in Jul.
• UAE banks’ deposits increased by 14.3% yoy in Jul, thanks to a strong 14.6% uptick in resident deposits and 11.9% rise in non-resident deposits (its share was just 8.3% of overall deposits).
• Private sector deposits account for 64.9% of total deposits and 70.8% of total resident deposits in Jul. Government and GREs together accounted for one-fourth of total deposits; these grew by 5.2% and 17.2% ytd.
• Banks are expected to benefit from robust economic growth in the country; high deposit growth is likely to outpace credit growth.

4. Domestic credit growth in the UAE rises by 4.8% ytd as of July 2024

• Gross credit in the UAE grew by 0.1% mom and 8.5% yoy to AED 2.101trn in Jul. This was driven by growth in domestic credit (0.3% mom and 6.3% yoy to AED 1.822trn in Jul) and foreign credit (24.6% yoy to AED 280.3bn). Foreign credit also includes loans and advances to non-residents, which grew by 7.5% mom and 22.3% yoy to AED 23.0bn.
• Within domestic credit, the share of loans to the private sector stood at 72.2% in Jul. Loans to the government and GREs increased by 4.6% and 1.5% year-to-date to AED 192.8bn and AED 296.8bn respectively as of end-Jul.
• Loans disbursed to business and industrial sector (at AED 858.4bn) accounted for close to 2/3-rds of credit to the private sector. Credit disbursed to the private business and industrial sector grew by an average 3.7% yoy in Jan-Jul 2024 while in contrast, private sector retail credit grew at a much faster pace of 11.8%.
• Separately, the capital and reserves of banks operating within the UAE touched a new high of AED 502.6bn, up 1.5% mom & 10.5% yoy.

5. Inflation has increased this year, on average, in both Dubai & wider UAE. Housing and insurance costs among major components driving the uptick.

• Inflation in the UAE eased to 1.7% in Aug (Jul: 2.0%), clocking in an average of 2.0% for the period Jan-Aug this year (Jan-Aug 2023: 1.5%). Food and beverage costs are inching up, rising to 2.8% in Aug (Jul: 2.0%) – the highest since Jan 2024.
• For the Jan-Aug period, yoy gains were registered in housing & utilities (3.2% vs 3.0%), education (2.6% vs 0.9%), medical care (1.6% vs 0.9%), transportation (0.8% vs -6.9%) and insurance & financial services (5.4% vs 1.4%). The sharpest declines were recorded restaurants & hotels (0.7% from 8.0%), food & beverages (2.1% vs 4.7%) and furniture & household goods (0.5% vs 3.0%).
• Inflation in Dubai clocked in at 2.5% in Sep, the lowest since Aug 2023, and from Aug’s 3.38%, with declines across most categories excluding housing & utilities (7.02% in Sep vs 6.92% in Aug), furnishings (0.4% from 0.3%) and personal care & miscellaneous goods (2.21% vs 1.84%). Both recreation and restaurants & accommodation costs turned negative in yoy terms in Sep (-2.7% and -0.1% respectively).
• Housing & utilities, with an overall weightage of 40.7%, recorded the largest yoy gains in the new series starting 2022 (using 2021 as the base year).
• Overall, for the period Jan-Sep 2024, price increases were sharpest for insurance & financial services (8.5% from 5.5% a year ago), housing & utilities (6.6% from 5.5%) as well as education (3.2% from 1.5%). The increase in population has been driving demand for houses and education, driving up the uptick in related costs.
• Sectors where price declines were evident in Dubai till Sep 2024 were food & non-alcoholic beverages, clothing & footwear, recreation (turning negative this year) and restaurants & accommodation, among others.

6. Gains in Middle East air passenger & cargo in Sep despite regional conflicts; strong demand to continue in Q4

• Global international passenger traffic growth was up by 9.2% yoy in Sep, and though growth has decelerated from previous months, air travel demand is expected to stay robust (as evidenced by ticket sales).
• Middle Eastern airlines’ international RPKs grew by just 4.4% yoy in Sep – the lowest after North America’s 0.5% gain. Asia Pacific was the fastest growing region globally for international RPKs (18.5% yoy and 29.5% ytd).
• Cargo tonne-kms (CTKs) grew by 9.4% yoy in Sep, up for the 14th straight month. It grew by a faster 12.6% ytd, with expansions across all regions; but demand contracted by 0.4% mom. Middle East carriers grew fastest ytd (+16.4%) followed by Asia-Pacific (+15.6%).
• Among international routes, Middle East-Europe trade route expanded for the 14th month in a row (15.6%) and 13 months of double-digit growth, followed closely by Middle East-Asia leg (+13.9%, the 16th straight month of growth & 12 in double digits).
• With shipping routes still facing disruption and e-commerce demand rising in US and Europe ahead of the holiday season, the airlines are poised to continue their strong growth showing.

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