Oil price fall not slowing growth in UAE, Saudi –report

Saudi Arabia and the UAE are seeing strong growth despite the oil price drop, Crédit Agricole Private Banking said in its latest report.

Both the countries have recorded strong growth in output and new orders, the report added.

“Interestingly in the UAE, once again new orders and new export orders components reflected strong growth, while job creation hit a three-month high,” said chief economist at Crédit Agricole Private Banking Paul Wetterwald.

“This is reflected in the UAE’s non-oil private sector PMI which did not decline significantly in May (56.4) compared to 56.8 in April. On the other hand, input costs rose contrasting with a slight decline of the output prices charged by companies.”

However he noted that it was too early to gauge if low oil prices might reduce consumer prices.

“We can see that the UAE’s consumer price index was up 4.2 per cent year-on-year in April, which is the same as in Dubai where inflation can be an issue. Nevertheless, we can say that the UAE is yet to fully feel the pinch of the lower oil price across its relatively diversified economy in comparison to GCC peers,” said Wetterwald.

Although Saudi Arabia saw a growth in new orders, he noted that the rate of growth and job creation in the kingdom eased during May.

“It was interesting to note that the kingdom’s headline PMI last month (57.0) was at its lowest level since May 2014,” said Wetterwald.

“Whilst the most recent data in the PMI series still depicts a growing non-oil private sector economy, our estimate of growth in Saudi Arabia is more conservative.

“For example, based inter alia on the latest Saudi Arabia Monetary Authority statistics, we get a Q1 2015 nominal GDP growth estimate which is only slightly positive.”

International crude prices fell from $115 per barrel last year to as low as $45 in January this year, leading to a budget crunch in many Gulf countries. Oil prices are currently hovering around $60 per barrel.

Although the oil-rich Gulf Arab countries have dismissed any immediate effects of oil price drop on their economies, analysts say that the impact might only be visible towards the end of this year.

In a recent report, World Bank estimated that the decline in crude prices could cost the GCC nearly $215bn, or 14 per cent of their combined gross domestic product this year. As a result, the region might also record a fiscal deficit for the first time in four years.