Growth stalls in major GCC economies: weaker new business to blame

October 6, 2016 5:54 pm

The non-oil private sector growth in major GCC economies has stalled on the back of sluggish new business activity.


Expansion in Saudi Arabia’s non-oil economy hit a three-month low in September with a subdued demand and easing employment, according to a survey by Dubai’s Emirates NBD.


Meanwhile in the UAE, business conditions in the sector were improving at the weakest pace since June.


Austerity to bite kingdom

The seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index (PMI) sank to 55.3 in September, the lowest reading of the third quarter. It was down from 56.0 in July and August’s one-year high of 56.6. The 50-point mark separates growth from contraction.


“Saudi Arabia’s PMI eased only slightly in September, on weaker new order growth.  However, the average PMI for Q3 2016 points to a faster rate of expansion in economic activity compared to the first half of this year,” said Khatija Haque, Head of MENA Research at Emirates NBD.


Last week, government data showed that, between April and June, Saudi Arabia’s economy grew at its slowest rate in more than three years.


As cheap oil began to erode state revenues, the economy’s growth has been slowing since early 2015. This has forced the kingdom’s government to take austerity measures, including cutting the salaries of public sector employees and ministers.


It is feared that the economy will remain under pressure from the effects of large scale-spending cuts.


“Recent announcements on spending cuts in the kingdom are likely to weigh on household consumption and consumer confidence, as we head into Q4,” Haque added.


Following the cabinet announcement on September 26 that there will be a 20 per cent cut in ministers’ salaries, and that bonuses and other financial perks for public sector workers will be reduced, the kingdom’s central bank gave instructions to commercial banks to reschedule consumer loans of customers hit by the first cut to public sector wages. The country’s banks fear that there will be an upsurge in non-performing consumer loans.


External pressure weighs on UAE

The UAE’s PMI slipped closer to the 50.0 no-change mark for the second consecutive month in September. Down from 54.7 in August, the latest reading of 54.1 was still consistent with a solid improvement in business conditions, the survey said.


It was also broadly in line with the average so far this year (53.8), albeit noticeably lower than the trends  in 2014 (58.1) and 2015 (56.0).


“The sharp slowdown in new order growth last month appears to be due to weaker demand from external markets rather than soft domestic demand.  Growth in output and purchasing activity remained strong. Overall, the PMI data points to a faster rate of expansion in the UAE’s non-oil private sector in Q3 2016, compared to Q2,” said Haque.


However, the companies operating in the country remain confident about the near-term outlook, given the sharp rise in output and purchasing, the survey revealed.


AMEinfo Staff
By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.