Buoyant GCC Growth To Continue Over H214

The latest HSBC purchasing managers' index (PMI) figures continue to support our positive outlook for the UAE and Saudi Arabia. In April, the UAE's PMI - one of the most useful guides to the overall health of the broader economy given a lack of timely official statistics - rose to 58.0, its second-highest level since the series began. Saudi Arabia posted a reading of 58.5 in the same month, up from a five-month low of 57.0 in March. With the non-oil private sectors of both countries still expanding at a rapid pace, we retain our forecasts for real GDP growth of 3.9% and 4.3% for the UAE and Saudi Arabia respectively in 2014.

The GCC's PMI figures are all the more impressive when placed in contrast with those of other major emerging markets, nearly all of which saw a fall in activity (see chart below). Despite these global headwinds, export orders in Saudi Arabia continue to perform strongly, with the latest reading among the highest on record. That said, the weakness of the Japanese and Chinese economies could begin to weigh down on Saudi non-oil exports - almost entirely composed of petrochemicals sold to East Asia - over the second half of the year (see 'China, Japan: Further Signs Of Weakening Growth', May 6).

Domestic conditions in the GCC's two largest economies remain solid. We recently upgraded our already bullish outlook on Dubai's economy, on the back of a slew of leading indicators which reveal the emirate's recovery is gaining speed. We forecast Dubai's real GDP growth to come in at 4.3% this year, outperforming the rest of the UAE as a result of buoyant activity in the tourism, real estate and retail sectors (see 'Dubai To Outperform Rest Of UAE', March 5). In Saudi Arabia, we expect non-hydrocarbon growth to remain spurred by sustained domestic demand and the government's ongoing infrastructure spending. The economic disruptions linked to a crackdown on foreign workers initiated at the end of 2013 appear to be easing, in line with our view. PMI data shows that growth in new orders accelerated in April to the quickest rate since the beginning of the year, partly on the back of an upturn in construction activity (one of the sectors initially most affected by the labour market disruptions).

Full Steam Ahead...
Saudi Arabia and UAE - Purchasing Managers' Index

Buoyant GCC Growth To Continue Over H214

The latest HSBC purchasing managers' index (PMI) figures continue to support our positive outlook for the UAE and Saudi Arabia. In April, the UAE's PMI - one of the most useful guides to the overall health of the broader economy given a lack of timely official statistics - rose to 58.0, its second-highest level since the series began. Saudi Arabia posted a reading of 58.5 in the same month, up from a five-month low of 57.0 in March. With the non-oil private sectors of both countries still expanding at a rapid pace, we retain our forecasts for real GDP growth of 3.9% and 4.3% for the UAE and Saudi Arabia respectively in 2014.

Full Steam Ahead...
Saudi Arabia and UAE - Purchasing Managers' Index

The GCC's PMI figures are all the more impressive when placed in contrast with those of other major emerging markets, nearly all of which saw a fall in activity (see chart below). Despite these global headwinds, export orders in Saudi Arabia continue to perform strongly, with the latest reading among the highest on record. That said, the weakness of the Japanese and Chinese economies could begin to weigh down on Saudi non-oil exports - almost entirely composed of petrochemicals sold to East Asia - over the second half of the year (see 'China, Japan: Further Signs Of Weakening Growth', May 6).

... Even As Other Emerging Markets Struggle
Selected Countries - HSBC Purchasing Managers' Index

Domestic conditions in the GCC's two largest economies remain solid. We recently upgraded our already bullish outlook on Dubai's economy, on the back of a slew of leading indicators which reveal the emirate's recovery is gaining speed. We forecast Dubai's real GDP growth to come in at 4.3% this year, outperforming the rest of the UAE as a result of buoyant activity in the tourism, real estate and retail sectors (see 'Dubai To Outperform Rest Of UAE', March 5). In Saudi Arabia, we expect non-hydrocarbon growth to remain spurred by sustained domestic demand and the government's ongoing infrastructure spending. The economic disruptions linked to a crackdown on foreign workers initiated at the end of 2013 appear to be easing, in line with our view. PMI data shows that growth in new orders accelerated in April to the quickest rate since the beginning of the year, partly on the back of an upturn in construction activity (one of the sectors initially most affected by the labour market disruptions).

SAUDI ARABIA AND UAE - REAL GDP GROWTH, %
Country 2007 2008 2009 2010 2011 2012 2013e 2014f 2015f 2016f
Saudi Arabia 6.0 8.4 1.8 7.4 8.6 5.8 3.8 4.3 3.3 3.2
United Arab Emirates 3.1 3.1 -4.9 2.4 3.3 6.2 4.1 3.9 4.1 3.7
e/f = BMI estimate/forecast; Source: BMI, Central Department of Statistics, UAE Central Bank

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