Outlook Improves Despite Geopolitical Tensions and Subdued Oil Prices
Despite continuing geopolitical tensions and subdued oil prices, the Middle East and Africa region had a largely positive third quarter. South Africa, the largest economy in this region, saw its labor problems diminish while Egypt reported a string of encouraging data, signaling that it is steadily recovering from a long phase of political and economic turbulence. News from the two oil exporting Middle Eastern economies under our coverage, Qatar and U.A.E, indicated that the countries likely remain resilient amid weak oil prices. Israel though had a slightly difficult quarter as it felt the impact of the Gaza Strip conflict.
At a Glance
South Africa: GDP expanded 0.6 percent in the second quarter as robust growth in the agriculture and financial industries offset the impact of the platinum miners’ strike. Precious metals exports, which were hit hard by the platinum miners’ strike from January to June, gained momentum.
Israel: GDP declined 0.4 percent between July and September. Acknowledging the Gaza conflict’s negative impact on the economy, Israel’s central bank cut its 2014 growth estimate for the country to 2.3 percent from its June projection of 2.9 percent
Egypt: The HSBC Egypt Purchasing Managers’ Index (PMI) for September showed a marked improvement in business confidence within the country. The unemployment rate remained in a downtrend, slipping by 0.2 percent to 13.1 percent in the third quarter.
Qatar:During the second quarter, output in the oil and gas sector declined 2.2 percent in annual terms but the broader economy managed to expand 5.7 percent on the back of double-digit growth in the construction, trading, hospitality, and financial sectors.
U.A.E.: An IMF team that visited the country recently said that despite its vulnerability to a further slide in oil prices, the U.A.E. economy might continue to recover at a robust pace on the back of strong activity in the construction, logistics, and hospitality segments.
SOUTH AFRICA: LABOR PROBLEMS EASE, BUT GOVERNMENT CUTS GROWTH FORECAST
Industrial strikes have hammered South Africa since last year, hurting not just its GDP but also investor and corporate confidence in its economy. Fortunately for the country, labor problems eased a bit during the third quarter. A walkout by more than 200,000 metalworkers over wage demands that started in July ended relatively quickly and the remainder of the quarter did not see any other episode of labor unrest. In contrast, both the first and the second quarter were pummeled by a platinum mine workers’ strike that stretched from January to June.
Still, the metalworkers’ strike reportedly affected production at about 12,000 companies, including construction and engineering firms and multinational carmakers like General Motors and Toyota Motor Corp. South Africa’s third-quarter GDP too has likely been affected and, by one estimate, the July work stoppage will curb the country’s economic growth this year by at least 0.3 percentage points. The good news though is that South Africa’s precious metals exports, which were hit hard by the platinum miners’ strike, appear to be gaining momentum, which should provide a boost to third quarter GDP. In September, exports on the whole jumped 18 percent on the back of a 45 percent surge in overseas sales of precious metals and stones, including platinum.
The South African economy expanded 0.6 percent in the second quarter as robust growth in the agriculture and financial industries offset the impact of the platinum miners’ strike. Notably, since GDP had shrunk 0.6 percent in the first quarter, another quarter of contraction would have pushed the country into recession. Nevertheless, the South African government believes that in 2014 Africa’s second largest economy will grow at a slower pace than previously estimated. In the budget policy presented to parliament at the start of the fourth quarter, South Africa’s finance minister projected GDP growth of 1.4 percent this year, significantly below the previous estimate of 2.7 percent growth. He cited several reasons for the downward revision in forecast, including the current slowdown in Europe, China, and other emerging economies as well as South Africa’s internal problems like the large energy scarcity and labor unrest.
ISRAEL: GAZA CONFLICT TAKES A TOLL ON THE ECONOMY
There are signs that the Gaza Strip conflict is taking a toll on Israel’s economy. According to the country’s Central Bureau of Statistics, national output declined 0.4 percent between July and September. In fact, had it not been for a 3.1 percent increase in public spending during the quarter, GDP would have contracted 1.4 percent. This is the first time the Israeli economy has contracted since the peak of the global financial crisis in early 2009. Acknowledging that the Gaza conflict is hurting consumption as well as the tourism industry, the Bank of Israel (central bank) has cut its 2014 growth estimate for the country to 2.3 percent. As recently as June, the central bank had pegged this year’s growth at 2.9 percent.
In another sign of weakening growth in Israel, September saw consumer prices tumbling 0.3 percent compared to the same month a year ago. This is the first time since 2007 Israel has clocked deflation or a negative annual rate of inflation. It is noteworthy that consumer prices dropped from a year ago despite the central bank’s attempts to boost growth and inflation. Even before annual inflation slipped into negative territory in September, the Bank of Israel cut its benchmark interest rate twice — in July as well as August — to bring down the rate to a record low of 0.25 percent.
On the flip side, though, Israel’s shekel currency has remained in a downtrend since early August, reflecting the world’s falling confidence in the Israeli economy. This has come as a big boost for the export sector, which accounts for nearly 40 percent of Israel’s $270 billion economy. Until August, Israeli exporters had been steadily losing competitiveness in the global market as the shekel stubbornly remained in an uptrend. During the third quarter, Israel’s exports expanded 2.8 percent.
EGYPT: EARLY SIGNS OF IMPROVEMENT IN BUSINESS CONFIDENCE
After several years of political and economic turbulence, Egypt is showing early indications of a recovery. Having ended the second quarter on an optimistic note, the North African economy reported more positive data during the third quarter. For instance, the HSBC Egypt Purchasing Managers’ Index (PMI) for September showed a marked improvement in business confidence within the country. According to the index, which tracks the health of the private sector excluding oil companies, September saw not just a spurt in output and new orders but also the first increase in employment levels since mid-2012. Similarly, the August PMI showed the fastest rise in export orders since late 2011.
In line with the September PMI, Egypt’s unemployment rate, which is published by the government-run statistics body CAPMAS, slipped by 0.2 percent to 13.1 percent in the third quarter. Although tiny, the decline is significant because it shows a downtrend in the number of jobless Egyptians. The unemployment rate touched a record 13.4 percent in late 2013, a period that saw continuing violence and instability following the expulsion of President Mohamed Morsi in July 2013. Fortunately, it has been falling slowly but steadily since the first quarter of this year.
Apparently, these encouraging signals have not gone unnoticed. Early in the fourth quarter, Moody’s credit rating agency upgraded Egypt’s outlook to ‘stable’ from ‘negative,’ attributing recent government programs and development initiatives to the upgrade. Egyptians too have shown faith in their economy. Asked by the government to finance a long pending expansion of the Suez Canal, an important source of revenue for the economy, Egyptians rushed in to purchase investment certificates. According to the central bank of Egypt, certificates worth $8.5 billion were purchased between August and October.
QATAR: CONSTRUCTION BOOM DRIVING GROWTH
All the latest data show that the Qatari economy is coping well with falling oil prices. The Qatar Statistics Authority (QSA) has said that during the second quarter, output in Qatar’s oil and gas sector declined 2.2 percent in annual terms but the broader economy managed to expand 5.7 percent on the back of double-digit growth in the construction, trading, hospitality, and financial sectors. In fact, activity in the country’s construction sector climbed as much as 14.5 percent in annual terms.
Qatar has reduced its crude oil production in line with global supply and price trends while major maintenance shutdowns have affected output at its Natural Gas Liquids and Liquefied Natural Gases plants. Still, the country appears well-placed to sustain its growth momentum largely due to strong activity in its non-oil sectors, chiefly construction, which is seeing an infrastructure boom as Qatar gets ready to host the 2022 soccer World Cup. A budget of $210 billion has been earmarked for infrastructure building, which has provided a massive boost to domestic spending. What’s more, infrastructure projects have been attracting a steady flow of immigrant workers into the country, which is also acting as a catalyst for consumption.
U.A.E.: IMF, GOVERNMENT SAY ECONOMY RESILIENT AMID FALLING OIL PRICES
All through the third quarter, falling crude oil prices dominated the economic outlook of the U.A.E., which is the fourth largest supplier in the Organization of Petroleum Exporting Countries (OPEC) and holder of 6 percent of global crude reserves. A team from the International Monetary Fund (IMF), which visited the country recently, has said that despite its vulnerability to a further slide in oil prices, the U.A.E. economy may continue to recover at a robust pace on the back of strong activity in the construction, logistics, and hospitality segments.
The team also said that growth in Abu Dhabi and Dubai, the two key states in the seven-state federation that comprises the UAE, would be underpinned by public projects and strong services-sector activity, respectively. The IMF has projected that the U.A.E. economy will expand 4.3 percent this year, slightly slower than last year’s 5.2 percent growth. Adding to the optimism, the U.A.E.’s economy minister has concurred with the IMF assessment and said that his country remains resilient because its dependence on oil revenues has diminished over the decades. According to the minister, an additional advantage for the U.A.E. is that its sovereign wealth funds have created several non-oil sources of income through global investments.
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