UAE non-oil business growth slows to 30-month low, Saudi lowest since 2009

The Emirates NBD PMI data suggests low oil prices are starting to have more of an impact on regional economies.

Employment growth in the UAE's non-oil sector grew marginally in October. Jeff Topping / The National

Business activity in Saudi Arabia and the UAE slowed to its lowest rate in several years, in the latest sign that low oil prices are hurting the real economy, a monthly survey of business managers showed.

Growth in the UAE’s non-oil economy slowed to its lowest rate in 30 months, while growth in Saudi Arabia dipped to its lowest level since surveys began in 2009, according to the monthly purchasing managers’ index (PMI).

The UAE’s PMI score dipped to 54.0 in October, its lowest level since March 2013. In Saudi Arabia, the index dropped to 55.7, the lowest score recorded for the kingdom.

Any score above 50.0 indicates that the non-oil economy is growing. The index asks managers whether they have seen increases or decreases in orders, output and employment.

The data is the latest sign that the fall in the oil price is hurting the economies of oil-exporting Arabian Gulf states.

Last month, the IMF downgraded its forecast for growth in Saudi Arabia, and has cut its expectations for growth in the UAE three times since the oil rout.

"A slower rate of growth in the non-oil private sector … is unsurprising in the context of sharply lower oil revenues and tighter liquidity conditions," said Khatija Haque, head of research for the Mena region at Emirates NBD.

Bank deposits have started to shrink in the UAE as public sector entities begin to withdraw cash following the drop off of government revenues, central bank data shows.

Dubai’s housing market has begun to cool as foreign interest in the city wanes, and lower Gulf spending reduces demand for property in the emirate.

“In the UAE, demand [from abroad] has been less supportive because of the strong dollar, and will likely decrease as GCC countries pull back on spending, so regional demand from there will also come down,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

“The UAE’s private sector has had a number of headwinds – the hospitality and tourism sector have both been affected by the strong dollar, while the housing sector has also slowed,” added ADCB’s Ms Malik. Saudi Arabia has tapped local bond markets, and is eyeing cuts to infrastructure spending and energy subsidies as it seeks to wrestle a budget deficit equivalent of more than 20 per cent of GDP this year.

Samas Foreign Holdings, the country’s sovereign wealth fund, has withdrawn up to $70 billion from foreign markets as it seeks to shore up its liquidity position, finance research firm Insight Discovery said in September.

Last week, ratings agency Standard and Poor’s downgraded Saudi Arabia, cutting the country’s credit rating to A+ from AA-, indicating an increased likelihood of default. The Saudi government called the revision “reactionary”, and said it was not based on the economic facts about the kingdom’s situation. “Saudi Arabia is far more driven by public spending [than the UAE],” said Ms Malik. “It has had a very loose fiscal policy in 2015. There has been a lot of discussion about fiscal reforms, and the October data could indicate that expectations of tighter fiscal policy are starting to hit business sentiment.” Alp Eke, senior economist at the National Bank of Abu Dhabi, said that Saudi Arabia’s situation wasn’t as bad as some analysts had said. “I don’t think the situation is that gloomy for Saudi Arabia. It has a very low debt-to-GDP ratio [about 17 per cent], and will gradually reduce spending and scale back on non-critical projects.”

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