Gloomy HSBC reports highlights UAE and KSA economic slowdown
Posted on 08 September 2011 with 1 comment from readers
The widely followed Purchasing Managers Index compiled by HSBC shows the UAE economy is close to stalling, ending the recovery evident in the first half of the year.
August was a particularly bad month, even after seasonal adjustments for the summer and Ramadan, and the PMI score fell to 50.9, its lowest level in 14 months. Regional chief economist Simon Williams commented: You can’t help feeling the slowdown across developed and emerging markets is evident here’.
For Saudi Arabia its PMI score slipped by two points to 58, the lowest reading in 18 months, reflecting a slowdown in output and new orders.
Global slowdown
ArabianMoney has previously reported on the sudden slowdown in global trade flows (click here), an ominous repetition of the backdrop to the slump in global trade during and immediately after the global financial crisis of late 2008. Most trade is dependent on credit and when that stops so does trade.
For the UAE a number close to 50 means stagnation, a drop below that number is a contraction or negative GDP. The UAE saw its economy nose-dive into 2009 although official statistics do not show the true extent of the contraction. The real estate market crashed from boom conditions and trade contracted violently in the first half.
Will it be any different this time? Well the real estate market is still relatively subdued so cannot crash to the same extent again and local banks have recapitalized since then, so the UAE will not get such a rough ride.
Oil price fall
However, oil prices have come down from recent peaks and will undoubtedly fall a lot further if the world goes back into recession.
That hits oil export earnings hard, and they have been running at record levels during the Arab Spring this year, mostly explaining the UAE economic recovery in the first half of this year, alongside a rise in trade and tourism. The Kingdom has been earning an extra $1 billion-a-week from higher oil revenues and the UAE around a quarter of that amount.
The HSBC survey showed that UAE output dropped four points in August, and new orders extended falls noted in July and employment growth also slowed up. With the KSA also trending lower this is not a great start to the final business season of the year.
1 Comment posted by readers:
And Goldman Sachs is now predicting a US recession next year. Will we get another bank bail out if we need it? Will the Tea Party block it? A banking crisis will be interesting. My guess is that they will join Fannie and Freddie in Government receivership before the end of next year. The only choices now are inflation or depression. Austerity has the Greek economy contracting by 7%. Imagine what that would do if it spreads to other debtor countries. QE 3 could be on the way around Christmas.