DUBAI, United Arab Emirates — Business activity for major Gulf economies Saudi Arabia and the United Arab Emirates is on the up, with clear positive outlooks for non-oil growth as the region recovers from the effects of the coronavirus pandemic and the consequent crash in oil prices early last year.
Saudi Arabia clocked its 14th straight month of non-oil private sector growth in October and the UAE saw the fastest rise in business activity and new orders in nearly two and a half years. For Saudi Arabia, the non-oil private sector’s output also grew at the fastest rate since the end of 2017.
For Ehsan Khoman, head of MENA research and strategy at MUFG, this is a sign of significant change in the region’s economies — and a potential signal that some oil producers may be developing more resilience to crude price volatility.
“There is a real sense of de-anchoring from oil price movements,” Khoman told CNBC Wednesday, “despite oil prices being at seven-year highs which has historically meant a relaxation of fiscal consolidation measures.” He described the conventional practice of using high government spending as the driver of growth as “the model of the past,” adding that “corporate activity is firming.”
A combination of elements are spurring recovery across the region — not least the fact that oil prices are at their highest in seven years.
But “non-oil growth is a pivotal driver of this recovery; sectors such as financial services have emerged from the pandemic in a position of strength,” consulting firm PwC said Wednesday in its latest Middle East Economy Watch. “When looking at Saudi Arabia,” it added, “its large pool of domestic demand and the government’s commitment to the giga-projects is central to spurring economic recovery.”
The lifting of mobility restrictions, resumption of travel and successful vaccination campaigns in both the UAE and Saudi Arabia have also been key to the current positive outlook. The International Monetary Fund forecasts that the Gulf Cooperation Council as a whole will achieve a fiscal balance in 2023, which would be the first time since 2014.
Still, the positive figures are a sign that governments’ efforts to diversify their economies away from hydrocarbons is gaining traction.
“October’s batch of PMIs suggest that non-oil sectors in the Gulf are ending the year on a strong footing,” a Wednesday note from Capital Economics’ James Swanston said.
This also means that prices are increasing — “the output price component in Saudi rose to its highest level since August last year,” Swanston said, meaning that accelerating inflation is likely on the horizon.
