Hurt by Commodities and Oil Price Slump, Weak Export Demand
During the second quarter and July, the countries under our coverage in the Middle East and Africa region continued to battle global macroeconomic problems and, in some cases, hurdles specific to their own economies. The largest among these countries, resource-rich South Africa, struggled to boost growth amid the downturn in the global commodities market and a power shortage at home. Export-driven Israel experienced an unexpected slowdown as its overseas sales of manufacturing and defense consumption goods plummeted. Egypt though showed more signs of a recovery from the political and economic turmoil it has experienced in the past few years. The two smallest economies under our coverage, oil and gas-rich UAE and Qatar, coped with the global energy price slump on the strength of their non-energy sectors.
At a Glance
South Africa: Mindful that a higher-than-acceptable-inflation rate may be a bigger threat to the South African economy than slowing growth, the South African Reserve Bank increased interest rates in July after keeping them unchanged for a year.
Israel: GDP in the country grew at an annualized rate of just 0.3 percent in the second quarter as exports plunged more than 12 percent during the period on reduced overseas sales of manufacturing and defense consumption goods.
Egypt: The unemployment rate continued to improve, slipping to 12.7 percent in the second quarter from 12.8 percent in the first quarter and below the 13.3 percent recorded in the same period a year ago. Around 66,000 new jobs were added during the second quarter.
U.A.E.: UAE’s economic growth is projected to slow down in 2015 from last year as the oil price slump takes a toll on real estate and corporate activity.
Qatar: The Qatari economy remained vibrant during the review period despite the global energy price slump due to the strength of its non-hydrocarbon sectors.
SOUTH AFRICA: ECONOMY BOGGED DOWN BY POWER SHORTAGE, INFLATION
All through the second quarter and July, South Africa remained bogged down by decelerating growth and rising inflation, a condition similar to what is described by economists as “stagflation”.
Growth is being held back in the economy due to various reasons, both structural and episodic. For some time now South Africa has been coping with weak demand for its abundant mineral and metal resources in the global commodities market, frequent labor problems, a depreciating currency, high household debt, as well as record unemployment. And now, a critical electricity shortage is adding to the country’s woes. The power situation in South Africa has been deteriorating as Eskom, the major utility that provides close to 95 percent of the nation’s power, has not been adequately investing in additional generating capacity. The problem appears to have worsened lately, with South Africans facing more or less daily blackouts in the past few months. The power outages have affected businesses, especially the smaller ones. What’s worse, in order to fund investments in additional capacity, Eskom raised its power tariff nearly 13 percent in April.
While this tariff hike may help in improving South Africa’s power situation in the medium term, it has certainly contributed to the inflationary pressures in the country. Along with slowing growth, inflation is an added concern for South Africans now as the depreciating domestic currency has made imports costlier and a drought in the southern part of the country has pushed up food prices. The South African Reserve Bank (SARB) has estimated that inflation will increase from an average of 4.9 percent this year to an average of 6.1 percent next year, significantly above the central bank’s target range of 3 percent-6 percent. In fact, mindful that a higher-than-acceptable inflation rate may be a bigger threat to the South African economy than slowing growth, the SARB increased interest rates in July after keeping them unchanged for a year.
ISRAEL: LARGE DECLINE IN EXPORTS SLOWS DOWN GROWTH
Israel’s Central Bureau of Statistics has said that GDP in the country grew at an annualized rate of just 0.3 percent in the second quarter. The Israeli economy had expanded at an annualized rate of 2 percent in the first quarter. Given this and the fact that most economists expected output to grow at least 2.7 percent in the second quarter, the latest growth figures disappointed economists and policymakers. In fact, the country’s Finance Ministry said in a report that the “growth slowdown in the second quarter put Israel in a position of inferiority,” especially since it was lower than not just most developed countries but also many struggling European economies like Greece. Israel’s new Finance Minister has promised to focus on “developing industry and easing restrictions” in order to boost growth.
The Chief Economist of the Finance Ministry has cited a fall in investments and weak exports, especially overseas sales related to manufacturing and defense consumption, as the primary reasons for the growth slowdown. Exports, which account for nearly a third of the $280 billion Israeli economy, plunged more than 12 percent during the second quarter. On the positive side though, Israel’s rate of inflation remains stable. In July, prices declined on an annual basis for the 11th month in a row, although they edged up 0.2 percent from June.
EGYPT: MORE SIGNS OF RECOVERY
Egypt appears to be slowly but continuously recovering from the political and economic turmoil it plunged into following the two uprisings that overthrew two presidents in four years. During the second quarter and July, the country reported several data that indicate its progress. For one, the unemployment rate continued to improve, slipping to 12.7 percent in the second quarter from 12.8 percent in the first quarter and below the 13.3 percent recorded in the same period a year ago. According to the nation’s statistics agency, around 66,000 new jobs were added during the second quarter, which took the size of the labor force to 27.8 million. This is a significant development because the first uprising against the Hosni Mubarak regime in February 2011 was largely fueled by the acute scarcity of jobs for young Egyptians.
Early in the second quarter Egyptian authorities also reported a decline in the country’s total foreign debt. This means that Egypt has been paying off its debt regularly, which is important because post-2011, the nation has received large sums of money in the form of both aid and loans from oil-rich Middle-Eastern neighbors like Saudi Arabia, Kuwait and the United Arab Emirates for its recovery and growth.
Moving ahead, Egyptian authorities have planned an ambitious program to attract more foreign investment to the country. They plan to build a new capital in the desert about 45 kilometers east of Cairo at a cost of about $45 billion.
OTHER ECONOMIES:
U.A.E.: According to various projections, UAE’s economic growth is expected to slow down in 2015 from last year. For instance, the International Monetary Fund (IMF) has forecast that UAE will clock a growth rate of 3 percent this year, down from the 4.6 percent recorded in 2014, as the oil price slump takes a toll on real estate and corporate activity. In fact, even the UAE government’s planned spending cuts are expected to diminish the country’s growth rate by one percentage point each year until 2020. However, on the whole, UAE remains one of the most diversified economies in the Middle East region largely because of Dubai’s strength in sectors other than oil, such as tourism, IT and finance.
QATAR: A report by the Qatar National Bank indicates that the Qatari economy, which is largely dependent on gas and oil exports, remained vibrant during the review period - despite the global energy price slump - due to the strength of its non-hydrocarbon sectors. Construction, financial services and manufacturing were the chief engines of growth in the country. In fact, work on several massive projects, like the Doha Metro as well as several real estate development and infrastructure projects, has made construction the fastest growing area of the Qatari economy now. Meanwhile, manufacturing activity received a boost from the hydrocarbon industry’s planned diversification into higher-value products.
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