Saudi Arabia and the UAE may slowly get rid of the shackles of the oil movement

Dubai, United Arab Emirates – Commercial activity in Saudi Arabia and the United Arab Emirates, the major Gulf economies, is on the rise. As the region recovers from the effects of the coronavirus pandemic and the ensuing oil crash, the prospects for non-oil growth are clearly optimistic Prices at the beginning of last year.

Saudi Arabia’s non-oil private sector achieves growth for the 14th consecutive month in October The growth of business activity and new orders in the UAE is the fastest in nearly two and a half years. For Saudi Arabia, the output of the non-oil private sector has also grown at the fastest rate since the end of 2017.

For Ehsan Khoman, head of research and strategy for the Middle East and North Africa of Mitsubishi UFJ Financial Group, this is a sign of major changes in the region’s economy—and a potential signal that some oil producers may be responding to crude oil price fluctuations. Great flexibility.

Homan told CNBC on Wednesday: “The volatility of oil prices does make people feel de-anchored, although oil prices are at a seven-year high, which historically means relaxation of fiscal consolidation measures.” He described the traditional practice of using high government spending as a growth driver as “Past model” and added that “corporate activities are intensifying.”

A series of factors are stimulating the recovery in the region-especially oil prices are at their highest level in seven years.

But consulting firm PricewaterhouseCoopers stated in its latest Middle East Economic Watch on Wednesday that “non-oil growth is the key driver of this recovery; industries such as financial services have emerged from the pandemic and are in a strong position.” As far as Saudi Arabia is concerned,” it added, “its huge domestic demand and the government’s commitment to gigabit projects are at the core of stimulating economic recovery.”

The removal of travel restrictions, the resumption of travel and successful vaccination campaigns in the UAE and Saudi Arabia are also key to the current optimistic outlook. The International Monetary Fund predicts that the Gulf Cooperation Council as a whole will achieve fiscal balance in 2023, which will be the first time since 2014.

Saudi Arabia’s Purchasing Managers Index reached a seven-year high of 58.6 in September. Although the index fell slightly to 57.7 in October, analysts said the outlook for economic activity remains strong.

“Yes, the overall purchasing managers’ index has declined, but with such a high level of health in the 1950s, it is clear that the non-oil sector is recovering at a fairly rapid rate,” Koman said.

The World Expo is vital to the emirate’s key industries such as transportation, tourism and hospitality, and Dubai’s continued relaxation of Covid restrictions has also contributed to the growth of demand.

Qatar’s October PMI also hit a record high of 62.2, which was higher than the previous month’s 60.6.According to Capital Economics, its price “increased at the fastest rate since March.” Relaxing Covid restrictions in this small natural gas-rich state has also boosted activity and demand.

However, it is undeniable that without the sharp rebound in oil prices since the outbreak of the pandemic-the international benchmark Brent crude oil This year alone, it has risen by more than 60%-the Gulf countries will not be in such an optimistic position.Within months of the oil price plunge in 2020, the Kingdom of Saudi Arabia Increase value-added tax or sales tax from 5% to 15%.

Tarek Faderala, CEO of Nomura Asset Management Middle East, warned: “Saudi PMI data continues to remain positive, but distortions caused by the pandemic may be playing a role.”

“The long-term outlook for the non-oil sector seems very promising, but we are still in a relatively early stage of economic diversification,” he emphasized. “Of course it’s encouraging, but I won’t interpret the monthly data too much at this time.”

Nonetheless, the positive figures show that governments’ efforts to diversify their economies and stay away from hydrocarbons are gaining momentum.

“A batch of purchasing managers’ indexes in October showed that the non-oil sector in the Gulf region performed strongly at the end of the year,” Capital Investment’s James Swanston said in a report on Wednesday.

This also means that prices are rising-“Saudi Arabia’s output price component has risen to its highest level since August last year,” Swanston said, which means that inflation may be about to accelerate.