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GCC economies post strong non-oil growth

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Regional purchasing managers’ index (PMI) data for June showed continued strong growth in the non-oil sectors of GCC economies amid rising borrowing costs, weak global growth and lower oil prices, a report said.

This apparent resilience sees the GCC doing well heading into the second half of this year, although hydrocarbon production is likely to be lower than in 2022, said UAE NBD Research, by research director and chief economist Khatija Haque.

United Arab Emirates

The S&P Global UAE headline PMI rose to 56.9 in June from 55.5 in May, the highest in four years. Both business activity and new orders rose at their fastest pace this year, seemingly driven mainly by strong domestic demand.

New export orders did increase in June, but at a much slower pace than overall new order growth. Firms again lowered average output prices despite a modest rise in input costs, so lower selling prices may have helped strong demand. Backlogs grew at the fastest pace in three months in June even as businesses ramped up hiring. Private companies are also more optimistic about the outlook for the year ahead in the second quarter of 2023 than they were in the first quarter of 2023.

The average PMI for Q2 2023 was 56.3, the strongest quarter since Q2 2019, justifying our recent upward revision to the UAE’s 2023 non-oil growth forecast to 5.0% from 3.5% previously.

Saudi Arabia

Saudi Arabia’s Riyadh Bank PMI rose to 59.6 in June from 58.5 in May on strong growth in new jobs and business output. Contrary to the UAE, new export orders have accelerated sharply in recent months, with the index rising to 63.4 in June from 49.4 in May, the report noted.

The employment component of the survey last month rose to its highest level since August 2015 as private businesses boosted hiring amid strong gains in new jobs and activity. A surge in purchasing activity in June led to another sharp rise in inventories. Input costs rose again in June, but input cost inflation was relatively benign. Enterprise sales prices remained largely unchanged in June. Despite lower-than-expected oil prices in the first half of 2023, businesses remain very optimistic about their outlook for the year ahead, the report said.

The report expects Saudi Arabia to post non-oil growth of 4.8% this year, unchanged from 2022. However, overall GDP growth is expected to turn slightly negative due to further cuts in oil production that started in July.

Qatar

The only GCC economy to show signs of slowing last month was Qatar, where the Qatar Financial Center Purchasing Managers’ Index fell to 53.8 from 55.6 in May. Both activity and new orders rose in June, but at a slower pace than in May, while private sector employment was little changed last month. The backlog has decreased each month since July 2022, indicating spare capacity in the non-oil sector of the economy. Input costs edged up in June, but companies discounted selling prices at the fastest pace since February 2022 to attract new customers and retain existing ones.

Egypt

Egypt’s PMI rose to 49.1 in June from 47.8 in May, the highest reading since August 2021. While still in contraction territory, the survey showed some stabilization in the private sector last month. Output and new orders fell at the slowest pace in more than a year, and cost pressures also appeared to be easing. However, business optimism remained muted, with just 4% of panelists expecting higher output a year from now, the report said. – trade arab news agency

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